Dear Savvy Senior, I’m trying to figure out the best time for my wife and I to start taking our Social Security retirement benefits and would like to understand the breakeven age. What can you tell me? – Strategizing Sam
Dear Sam,
As you approach retirement, one of the most important financial decisions you’ll face is when to begin collecting Social Security retirement benefits. A useful concept to guide your thinking is the “breakeven age,” which helps you evaluate the trade-off between taking a reduced benefit early versus a higher one later. Here’s what you should know.
SSA Waiting Game
The Social Security Administration allows you to start collecting your retirement benefits as early as age 62. However, your monthly benefit will be permanently reduced – about .5% each month – if you claim before your full retirement age (FRA), which is 67 for those born in 1960 or later. Conversely, for every year you delay claiming beyond your FRA – up to age 70 – your benefit amount increases 8% each year. Your benefit maxes out at age 70, so there’s no financial incentive to wait longer.
Break-even Age
The breakeven age is the point when the total benefits from waiting to claim equal the total you would have received by starting earlier. Live longer than that age and delaying pays off. Live shorter and claiming early pays more. It’s a simple benchmark for retirement planning.
The exact break-even age varies based on individual circumstances, but a common comparison is between claiming at age 62 versus waiting until FRA. For most people, the break-even age for this scenario is around 78. Another common comparison is claiming at FRA versus waiting to age 70. The average break-even age here is around 82.
Other Considerations
Keep in mind that while the break-even age is a powerful tool, it is just one piece of the puzzle. It doesn’t account for other crucial factors like your health and family longevity. If you have chronic health problems or a family history of shorter lifespans, taking a reduced benefit early might be the most prudent choice to ensure you receive a significant number of payments.
On the other hand, if you’re in good health and expect to live a long life, delaying your benefits to age 70 can provide a much higher income stream that acts as a form of longevity insurance. To estimate your life expectancy, try the online tool livingto100.com.
Furthermore, a married couple’s claiming strategy can be complex. The higher-earning spouse’s decision can significantly impact the survivor benefits for the lower-earning spouse. Waiting for the higher earner to claim at age 70 can provide a larger benefit for the surviving spouse for the rest of their life.
In the end, there is no one-size-fits-all answer. The break-even age provides a useful framework for comparison, but the decision of when to claim your benefits should also consider your health, financial situation and family.
Online Calculators
There are several online calculators that can help you and your wife figure out the best time to claim your benefits. One that’s completely free to use opensocialsecurity.com. Or for a more thorough analysis use maximizemysocialsecurity.com. This tool, which costs $49 for a year, will run what-if scenarios based on your circumstances to find your best strategy for getting the highest possible lifetime payout.
Journalist and senior advocate Jim Miller is the creator of Savvy Senior, a weekly information column devoted to older adults that appears in more than 250 U.S. newspapers and magazines. He is also the author of The Savvy Senior: The Ultimate Guide to Health, Family and Finances for Senior Citizens (Hyperion) and is frequently featured in major media outlets, including Time, USA Today, The New York Times, CNBC and CNN. Send your questions or comments to questions@savvysenior.org, or to Savvy Senior, P.O. Box 5443, Norman, OK 73070.
