Most Americans who claim Social Security benefits before age 70 risk losing significant lifetime income, according to research from Boston University economists and the Federal Reserve Bank of Atlanta. The study finds that by claiming benefits early—often as soon as age 62—retirees typically sacrifice around $182,000 in lifetime discretionary income compared to waiting until age 70.
How claiming age affects benefits
The Social Security Administration (SSA) sets a “full retirement age” between 66 and 67 depending on birth year, at which workers receive 100% of their calculated monthly benefits. Retirees can claim benefits starting at age 62, but payments are reduced by roughly 30%. Conversely, delaying claims until age 70 increases monthly benefits by about 32%. Despite this, only about 6% of U.S. workers wait until 70 to claim Social Security, while nearly half claim benefits before their full retirement age and one-quarter claim as early as 62.
Financial tradeoffs and common behaviors
Although early claimants receive benefits for more years—up to eight additional years between 62 and 70—the reductions in monthly payments typically outweigh the longevity of payments for most individuals. For example, a hypothetical 60-year-old unmarried worker earning $80,000 annually would receive about $35,337 per year at full retirement age 66, $26,502 at age 62, or $46,947 if she waits until 70. While claiming early yields eight extra years of benefits, it ultimately results in lower lifetime income unless she lives less than approximately 10 years after age 70.
Researchers emphasize that concerns about dying too soon to benefit from higher payments may be misguided. Average life expectancy for 65-year-olds is about 83 for men and 85 for women, but financial planning should account for living into one’s 90s or beyond to maximize benefit intake.
Labor market participation and alternative strategies
Laurence J. Kotlikoff, co-author of the study, suggests that many able-bodied individuals should remain in the workforce past 62 rather than claim Social Security early. Working longer not only improves lifetime earnings but also allows for delayed claiming, increasing benefits. For those concerned about immediate cash flow, other strategies such as drawing down retirement savings or reducing living costs can help bridge the gap until full benefits begin.
Why it matters
Given that nearly half of Americans over 55 have no retirement savings and many underestimate how much they need for a secure retirement, understanding the financial impact of early Social Security claiming is crucial. Delaying claims until age 70 can significantly enhance lifetime discretionary income, potentially improving retirees’ financial security in later years.
Background
The research aligns with long-standing advice from financial experts advocating for delayed Social Security claims. The SSA program allows for flexible claiming ages but imposes reductions for early claims and bonuses for delayed claims. Yet, behavioral factors, such as fear of dying early or immediate income needs, drive many to claim benefits as soon as eligible. This study quantifies how these decisions affect overall income over a retiree’s lifespan.
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