The Unfortunate Truth About Claiming Social Security at Your Full Retirement Age.

Your decision about claiming Social Security can be very complicated. You have an eight-year window when you can start your benefits, but starting at 62 (the earliest age you’re allowed) is going to have a very different outcome than starting at 70 (the latest age when it makes sense to claim). 

For many people who are confused about when to claim, full retirement age may seem like the default. Full retirement age, or FRA, is the date when you get your standard benefit or primary insurance amount. So, why not claim then?

Sadly, when you delve into the details about optimizing your benefits, you’ll likely find that claiming at your FRA isn’t all it’s cracked up to be. 

When is your full retirement age for Social Security?

Your FRA depends on when you were born. Here’s when yours is based on your birth year:

As you can see, for most people born in 1960 or later, you have to wait until 67 to get your benefits.  That may feel like a long time, especially since it is two years later than FRA used to be.  But, sadly, it may not actually be long enough to optimize your claim.

Why claiming Social Security at full retirement age may not be the right move

There’s a simple reason that claiming Social Security at your full retirement age isn’t the right move for many retirees.

The fact is, benefits keep increasing even beyond your FRA. Benefits go up 2/3 of 1% per month for every month you wait to claim retirement checks after FRA. That benefit bump continues to happen until 70, when there’s no further advantage to delay and no reason not to claim immediately.

A 2/3 of 1% monthly benefits increase adds up to an 8% annual increase. If you are scheduled for a $2,000 Social Security check at your full retirement age and you wait three full years to claim it, the 24% increase would bring that monthly payment up to $2,480. An extra $480 every month gives you $5,760 more money per year for life.

Plus, since you get Social Security cost-of-living adjustments, which are calculated on a percentage basis (such as 2.8%), you’ll see bigger dollar-for-dollar benefit increases each year.

Should you wait to claim your Social Security?

So, should you put off your claim until after your FRA? To decide that, you have to think about monthly and lifetime income.

Obviously, getting $480 per month helps you out each month — but what are the odds a delay will max out the total Social Security payments you collect over your retirement? The National Bureau of Economic Research actually reports that around 90% of retirees get more lifetime income if they wait.

That’s because the system of delayed retirement credits and early filing penalties was created when life expectancies were shorter. It was meant to equalize out how much you collected regardless of whether you were an early or late claimer, but now those who delay get their higher benefit for longer than they used to.

To figure out what makes sense for you personally, you should calculate your break-even age. That’s the age when the extra income due to the delayed benefit makes up for the missed benefits during the years you could have collected Social Security but didn’t.

To figure out your break-even age:

• Calculate how much income you lost by waiting: If your benefit at FRA was $2,000 and you wait until 70 to claim, you give up three years of $2,000 monthly checks or $72,000.
• Calculate how much higher your benefit is because of the delay. A $2,000 check grows to $2,480 by waiting from 67 to 70, so you get $480 more per month.
• See how many months until you break even. To make up for $72,000 in missed income, you must collect the extra $480 per month for 150 months or 12.5 years.

If you live until about 82.5 to 83, you’d be better off. Since many people do live that long, the odds are good that a delay beyond FRA could be the clear best choice. Of course, you may have health issues or other factors that affect your personal claiming choice. A financial advisor can help you make a personalized assessment of the best age to claim benefits so you can decide what’s right for you.