Why the Average American's Social Security Claiming Age Doesn't Matter

Americans who are eligible can claim Social Security at any time between the ages of 62 and 70, and full retirement age is between 66 and 67, depending on when you were born. While monthly benefits are reduced for claiming early and increased for waiting, your claiming age theoretically has no effect on how much you'll receive in total. Here's why.

How long will the average American collect Social Security?

It's fairly common knowledge that if you claim Social Security before your full retirement age, your benefits will be reduced, and if you wait until after your full retirement age, your benefits will be permanently increased. Specifically, your benefits can be permanently increased or decreased by the following rules.

  • Reduction of 6.67% per year (about 0.56% per month) for up to 36 months before full retirement age.
  • Reduction of 5% per year (about 0.42% per month) beyond 36 months, as early as age 62.
  • Increase of 8% per year (about 0.67% per month) beyond full retirement age, as late as age 70.

Here's the point. These aren't arbitrary percentages. Rather, these are based upon actuarial life expectancy tables. Here's how long the average American will live beyond certain ages, according to the Social Security Administration:

What this means is that the average person who claims Social Security at 62 will collect benefits for 21.4 years, while the average person who waits until 70 will receive a total of 15.3 years of payments. This is why the initial monthly benefit is increased over time to compensate.

Don't forget about inflation

Social Security is an inflation-protected income stream. Specifically, Social Security benefits are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), and are adjusted upward annually if the index rises. This process is known as cost-of-living adjustments, or COLA.

While there's no way to accurately predict what inflation will be next year, over the next five years, and over the next 50 years, here's what we know:

Since 1974, the CPI-W has increased at an average annualized rate of about 3.8%. However, inflation is not expected to be quite so high going forward. According to the latest estimates by the Social Security 2016 Trustees Report, CPI-W inflation, and therefore cost-of-living adjustments, are expected to average 2.6% annually for the foreseeable future.

As an example, if you're at your full retirement age of 66 today and wait until age 70 to claim benefits, not only should you expect your Social Security benefit to rise by 32% based upon the delayed retirement credit I discussed earlier, but you can also expect your initial benefit to increase by an additional 10.8%, thanks to annual cost-of-living adjustments in the benefit formula.

What this all means for the average American

In a nutshell, the system is designed so that the average beneficiary will get the same total amount of benefits, when adjusted for inflation, regardless of when they claim. Because of the slight differences in life expectancies between the sexes, the average male is better of claiming a little earlier, while the average female is better off waiting. As a whole, however, it theoretically doesn't matter when the average American claims Social Security.

What's the best claiming age for you?

To be clear, the life expectancies Social Security benefits are based upon are actuarial averages. This doesn't mean that it doesn't make a difference when you claim Social Security.

There are good reasons to claim Social Security at age 62, and there are also good reasons to wait until age 70. Or, the ideal claiming age for you could be somewhere in between. The point here is that the system is designed so that the average American will get roughly the same amount of lifetime benefits, regardless of their claiming age. Maybe you're the average American, and maybe you're not.

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