Selecting a specific age to apply for something Social Security is a federal program that provides financial assistance to retirees, disabled individuals, and survivors of deceased workers. Making a decision about Social Security is a significant financial choice that can have lasting implications. Individuals who have retired can start receiving benefits at 62 years old, but if they choose to wait, the amount they receive each month will increase by a set percentage until they reach the age of 70.
In other words, individuals who retire and begin receiving Social Security benefits at age 62 will receive the highest number of payments, but their benefits will be significantly reduced. On the other hand, those who delay claiming Social Security until age 70 will see a substantial increase in benefits, but they will receive fewer total payments.
The importance is significant since Social Security is commonly the primary source of income during retirement. The optimal age to begin receiving benefits depends on each person’s specific situation. However, if the objective is to maximize total benefit earnings over a lifetime, data provides a definitive answer on when to apply for Social Security benefits.
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Asserting that the age of a retired worker is a crucial factor in deciding their Social Security benefits.
Retirement benefits from Social Security are determined by three factors: the year of birth, total lifetime earnings, and the age at which benefits are claimed.
- Birth year: Your birth date dictates your fate. The age at which a person can receive full retirement benefits. Full Retirement Age (FRA) workers receive their full Social Security benefits when they claim them. The main insurance benefit amount (PIA).
- Income generated over the course of a person’s life. The formula for advantages Your Primary Insurance Amount (PIA) is calculated based on the inflation-adjusted income you earned during your top 35 earning years.
- Claiming age: The amount of your Primary Insurance Amount (PIA) is modified depending on whether you retire early or late. Individuals who start receiving Social Security benefits before their Full Retirement Age (FRA) will get less than the full PIA amount. In contrast, individuals who start receiving Social Security benefits after their FRA will receive more than the full PIA amount.
The majority of retired individuals can optimize their benefits over their lifetime by applying for Social Security at the age of 70.
In the previous year, over 25% of recently retired individuals began receiving Social Security benefits at age 62, with over 50% facing a reduction in their benefits for claiming them before reaching full retirement age. This decision may have resulted in them losing out on significant amounts of money, potentially amounting to hundreds of thousands of dollars in certain situations.
Research released in 2022 by the National Bureau of Economic Research titled “How Much Lifetime Social Security Benefits Are Americans Leaving on the Table?” revealed that more than 90% of individuals between the ages of 45 and 62 could maximize their Social Security benefits by waiting until the age of 70 to claim them. However, the study indicated that most people are likely to begin receiving their benefits earlier, leading to a median lifetime benefit income reduction of $225,944.
Certainly, there are instances where it is logical to apply for Social Security benefits before reaching the age of 70. However, financial advisors at JPMorgan Chase It is advised that people consider the following questions before making any choices.
- Are you presently employed? If your response is affirmative, it is advisable to postpone claiming Social Security benefits until you retire from your job. This is particularly relevant for individuals who are affected by the situation. retirement income examination , which dictates that certain benefits will be reduced if Social Security recipients who have not reached full retirement age earn income above the yearly thresholds.
- Do you have additional sources of revenue? If you have extra sources of income that allow you to live comfortably, it may be beneficial to postpone receiving Social Security in order to receive a higher amount later. According to the Nationwide Retirement Institute, more than 80% of adults have additional sources of retirement funds, such as investments, savings accounts, and pensions.
- Are you anticipating to live past the age of 77? If you answer affirmatively, it is advisable to postpone your Social Security benefits. Individuals born in 1960 will reach a break-even point at the age of 78 when weighing the advantages of claiming benefits at 62 years old versus waiting until full retirement age. Essentially, individuals who are expected to live at least to the age of 78 (but not beyond 81) will optimize their overall benefits by filing for Social Security at their full retirement age.
- Are you anticipating to survive past the age of 81? If you have a positive response, it may be beneficial to postpone receiving Social Security benefits. Individuals born in 1960 will reach a break-even point at the age of 82 when comparing the benefits of claiming at their full retirement age or waiting until age 70. Essentially, individuals with a life expectancy of 82 years or more will optimize their total benefits by filing for Social Security at the age of 70.
Taking into consideration the information provided by JPMorgan Asset Management, there is a 67% likelihood that a man aged 62 will survive until he is 77, while there is a 53% chance he will reach 81. Based on these figures, it is implied that over 50% of 62-year-old men would optimize their Social Security benefits by applying for them at the age of 70.
According to JPMorgan Asset Management, there is a 77% chance that a 62-year-old woman will reach the age of 77 and a 66% chance that she will reach the age of 81. These figures indicate that around two-thirds of 62-year-old women would benefit the most by applying for Social Security benefits at the age of 70.
In essence, on average, both men and women aged 62 will receive the highest lifetime benefits from Social Security if they wait until the age of 70 to claim them. However, very few individuals will achieve the maximum lifetime benefits if they begin claiming Social Security at 62 years old.
People who are close to retiring should pay close attention to these points, especially if they are healthy. It is suggested that individuals who expect to live longer than average should wait until they reach the age of 70 to apply for Social Security benefits. On the other hand, those who anticipate a shorter lifespan may want to consider claiming their Social Security benefits at a younger age.
