Social Security benefits provide millions of retirees with a staple source of income each month. This leaves the question of when the best age to begin claiming benefits is. For this purpose, the SSA has created a Social Security Life Expectancy Calculator which can be used to determine how much one would ultimately earn in benefits in relation to their life expectancy.
Let’s do some inaccurate Social Security math
The SSA has a Full Retirement Age at which beneficiaries can claim their full benefits which is around 66-67 years of age. However, retirees can begin claiming benefits from 62 years of age, but the benefit amount will be slightly reduced and locked in at that amount.
The average life expectancy is “74.8 years for an American male and 80.2 years for a female”, according to the Centers for Disease Control and Prevention and a BankRate analysis has determined that the most common age to begin claiming Social Security is 62 — despite the fact that the longer one waits to begin claiming, the higher their benefit amount.
Using sample benefit figures from the SSA, hypothetically, a 62 year old retiree is able to claim a $1,400 check monthly. Assuming a life expectancy of 74.8 years, the beneficiary will receive a check each month for 154 months, or 12.8 years. This would amount to a total of $215,600, prior to any cost of living adjustments which occur once a year.
With the same life expectancy, a retiree who waits till age 70 to claim will receive almost double the benefit than that of someone who begins claiming at age 62. At 70, a retiree will earn $2,480 monthly for only 4.8 years, meaning the total earned would only be $143,800. As such, it is for this reason — amongst others — that the average American opts to begin receiving Social Security immediately upon retirement at age 62.
Another reason for claiming early is that may Americans do not have enough savings to supplement their benefits during retirement, whilst others fear that the welfare program will soon run out of money.
“People say, ‘I want to get the money while I can. I don’t know how long I’m gonna live,’” said Robert Brokamp, a senior adviser at The Motley Fool.
Some retirees claim early because they feel there is no other option. “Many people don’t have enough savings,” said Monique Morrissey, a senior economist at the Economic Policy Institute. “And it also makes people nervous to draw down their savings, even if it’s the right thing to do.”
Let’s do some accurate Social Security math
Brokamp and Morissey are both of the belief that retirees should hold off on claiming Social Security benefits early despite the aforementioned calculations. The reason behind this is simple, the life expectancy age mention above is accurate only at the birth of a male. As one ages, their life expectancy increases. “An American male who turned 62 on March 1 has an average life expectancy of 83.6,” according to the Social Security calculator.
So, for a retiree aged 62, the monthly benefit will still be $1,400, however, if he lives to be 83.6, he will now be receiving this monthly amount for 21.6 years. This would make the lifetime earnings amount to $362,600.
For someone who begins claiming at 70, he will receive benefits for 13.6 years, putting the lifetime benefit at around $404,200. Drawing from this, there is no doubt that it would be wiser to claim beyond the full retirement age rather than at 62.
For women, upon reaching retirement, their life expectancy increases to 86.5 years. With the life expectancy of 80.2, when claiming at 62, a retiree will receive $1,400 for 18.2 years, amounting to a total of $305,800. However, with a life expectancy of 86.5, she will receive benefits for 24.5 years, making her lifetime income $411,600.
At 70 with a life expectancy of 80.2, the retiree will earn $2,480 monthly for 10.2 years with a lifetime benefit $303,600. With the more accurate 86.5 life expectancy, however, she will claim $2,480 for 16.5 years resulting in a lifetime benefit of around $491,000.
It should also be noted that all of the aforementioned calculations have been approximated prior to any cost of living adjustments.
