Whether you realize it or not, Americans’ dependence on social security is almost at an all-time high, at least according to national pollster Gallup.
In April 2019, Gallup interviewed the retirees and found that 90% of them are at least somewhat dependent on the monthly allowance check to make ends meet. This binds an all-time high, which dates back to almost 20 years ago. Comparatively, 83% of non-members expect to need social security revenue to pay their bills during retirement, which is only 1 percentage point below an all-time high.
In other words, maximizing what you will receive from social security is becoming more important than ever.
These are the most important factors in determining social security benefits
As you may already know, there are more than half a dozen factors that can directly influence the amount you will receive from social security and / or the percentage of allowances you will receive. Of these factors, four stand head and shoulders above the rest.
The first two, the work history and the earnings history, are related to fashion. The Social Security Administration (SSA) takes into account the 35 most profitable, inflation-corrected years in calculating the full retirement age benefit (I’ll talk about which “full retirement age” at a time). This means that it is not only in your best interest to earn as much as possible every year you work, but to work at least 35 years to get a chance to maximize what you pay for the program. For each year in less than 35 people worked, an average of $ 0 is calculated in the calculation.
The third factor of merit is the year of birth, which is what helps determine the full retirement age. This is the age at which SSA determines that you are eligible to receive 100% of your monthly payment. For the vast majority of non-retirees, your full retirement age is probably 67. The essence here is simple: take your payments before reaching full retirement age and you can expect a permanent reduction to your advantage. Likewise, waiting until full board ends can further increase your payment.
Fourth, but most importantly, it is the age of your request. Although retirement benefits may begin at the age of 62, the program encourages patience. For each year an eligible applicant refrains from taking his payment, will grow up to 8%, up to the age of 70. Therefore, being all other factors identical, a retired worker who receives a payment at the age of 70 could earn up to 76% more per month than someone who pays a payment at the age of 62.
Of course, it’s not just about the monthly payment, but which strategy will make you earn more money than yours lifetime. Let’s take a look at what the most and least common claim ages were in 2018, according to SSA data, to get a better idea of what retirees are thinking.
The two most popular ages to apply for social security benefits
Based on the 2019 supplement presented by the SSA, 1.5 million new pensioners applied for benefits in 2018. Of these 1.5 million people, the age of 62 was the most popular retirement age, with 31% of the applicants who walked this road. As a reminder, applying for early age allowance can result in monthly reductions in payments of between 25% and 30% compared to what you would receive on full board.
There has been a rather sizable dropout from the more popular second age, which the SSA has simply termed “full retirement age”. Since full retirement age may vary for baby boomers, it represents 2018, 66, 66 years and 2 months, or 66 years and 4 months, in 2018. Statistics show that 14.3% of retirees have chosen to pay when has reached full retirement age.
It is also worth noting that 16.2% of new retired applicants were disability conversions at the age of 66, 66 years and 2 months or 66 years and 4 months. Benefits for disabled workers are automatically converted into benefits for retired workers in the month in which a disabled worker reaches full retirement age. I have chosen not to include this percentage with the 14.3% indicated above, since it is not a choice of a retiree, but rather an automatic conversion carried out by the SSA on his behalf.
Interestingly, a study conducted by United Income found that although most seniors prefer a 62-year-old indication, it rarely makes an optimal decision. Although (thankfully) we don’t know our deadline, the United Income study found that better than four out of five seniors would be better off if they had waited until 67-70 to start paying.
Less popular ages to benefit from social security benefits
As you have seen, including disability conversions, over 61% of new applicants in 2018 started receiving payments at 62 or 66 years old. But there were also a couple of years when few elders were tempted to start paying.
Although the SSA has not broken down age-specific percentages, it noted that between the month following a retiree’s full retirement age and the age of 69 (i.e. 66 years and from 5 months to 69 years and 11 months), only 8.4% of the elderly chose to start benefiting from it.
Why don’t more people wait until they reach full retirement age to receive payment? One possibility is that Americans are concerned about the future solvency of social security and want to make sure they get as much as possible now by claiming in advance. Financial difficulties are another reason, with a number of retirees today having insufficient savings to wait up to 67-69 years to start paying.
Another interesting point of the aforementioned joint income study is that the age of 70 is when most seniors would benefit most from getting their payment, at least on hindsight. In 2018, only 6.5% of applicants got paid at the age of 70 or older, but United Income found that this was the age at which 57% of seniors would make the optimal request.
As the full retirement age pushes towards its peak of 67 by 2022, we will likely see the average reporting age increase. But for the time being, age 62 remains, by far, the most popular claiming age.