The Social Security ‘break-even point’ could be worth thousands: Here’s why

For workers in the United States, the ‘break-even point’ is a crucial concept to understand when deciding when to apply for Social Security retirement payments.

It is the age at which a retiree’s cumulative benefits after a delayed initial claim equals the amount they would have received over the years had they applied early.

How retirement age affects Social Security benefits

The age at which you opt to start receiving retirement benefits is – alongside your career earnings – a factor that significantly impacts the size of your payments. Claimants can apply for their benefits from age 62, but are rewarded with a higher monthly amount for every year they hold off on claiming, up to a cut-off point of age 70.

If you claim early, you’ll get smaller monthly checks; however, you also stand to receive your money over a longer period before your death. Conversely, if you delay your initial benefits claim, you’ll receive larger monthly payments until you pass away, but over a shorter timeframe.

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When is the Social Security ‘break-even point’? An example:

Imagine, for instance, that you hold off on applying for your Social Security retirement benefits until you turn 67. For recipients born in 1960 or later, this the age that the Social Security Administration refers to as ‘full retirement age’ (FRA) – the point at which you qualify for 100% of your benefits entitlement. (Beyond your FRA, you then become eligible for a monthly sum above your full entitlement).

If, for example, your monthly eligibility at 62 is $1,400, this would mean missing out on $84,000 in benefits over the five years it takes you to reach your 67th birthday.

But by holding off until your FRA, you would up your monthly check by $600: a 30% increase to $2,000.

In this delayed-benefits scenario, your break-even age would arrive at 78 years and eight months, according to AS USA’s calculations. At this point, the cumulative value of your retirement benefits would be $280,000, both if you apply at 62 or wait until 67.

‘Break-even point’ – factors to take into account:

Assess your health and longevity: If you expect to live well beyond your break-even age, delaying benefits could result in higher lifetime payouts.

Consider your financial situation: If you need immediate income, claiming earlier might be necessary, regardless of the break-even point.

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