In May, the more than 51 million retired workers who received a Social Security check took home an average of $1,916.63, which works out to about $23,000 on an annualized basis. While Social Security income isn’t going to make anyone rich, it is responsible for lifting the financial fortunes of seniors more than any other social program.

An analysis from the Center on Budget and Policy Priorities found that 22.7 million beneficiaries — 16.5 million of whom were adults aged 65 and over — were raised above the federal poverty level in 2022 because of their Social Security income. Meanwhile, 88% of surveyed retired workers in 2024 told national pollster Gallup that Social Security represents either a “major” or “minor” source of income.

Given how important Social Security income has historically been to our nation’s retirees, it’s going to be imperative for future generations of retired workers to maximize what they’ll receive from America’s leading retirement program.

If you’re one of these tens of millions of future retired-worker beneficiaries, you’ll first need to understand the ins and outs of how your Social Security benefit is calculated. Only then can you wrap your hands around how important claiming age can be, and determine whether an early claim at age 62, or a true middle-ground approach, such as age 66, makes the most sense.

Four variables are used to calculate your monthly Social Security check

While there’s no denying that certain rules or aspects of Social Security can be confusing, the variables used by the Social Security Administration (SSA) to calculate your monthly check are straightforward and easy to understand.

In no particular order, these variables are your:

1. Work history

2. Earnings history

3. Full retirement age

4. Claiming age

The first two factors, your work and earnings history, are inseparable. When calculating your monthly benefit, the SSA will factor in your 35 highest-earning, inflation-adjusted years of earned income (wages and salary, but not investment income). This means if you generated a higher average wage or salary throughout your working career, you’re likely to receive a heartier Social Security payout during retirement.

The caveat to the point above is that the SSA will penalize you if you didn’t work for at least 35 years. For every year less of 35 worked, $0 is averaged into your monthly benefit calculation.

The third item on the list, your full retirement age, represents the age you become eligible to receive 100% of your monthly payout. The catch is that your full retirement age is determined by your birth year, so it’s not something you have any control over.

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The fourth variable, and the one with the greatest ability to swing your monthly benefit and lifetime income payout pendulum, is your claiming age. Although retired-worker beneficiaries can begin receiving their check as early as age 62, the program strongly encourages workers to be patient. This “encouragement” comes in the form of a monetary incentive. For every year a worker waits to claim their payout, beginning at age 62 and continuing until age 70, their benefit can grow by as much as 8%, as demonstrated in the table.

Data source: Social Security Administration.

Collecting benefits at 62 and 66 comes with very clear pros and cons

Every age within the traditional claiming age range of 62 through 70 has its own unique set of advantages and drawbacks, which is why it’s so important to understand the monetary implications of the table.

Based on data from Social Security’s latest Annual Statistical Supplement, the two most-popular claiming ages in 2022 were 62 (27.3% of new claimants) and 66 (24.7% of new claimants, not counting automatic disability conversions). Both ages are likely to remain popular for future generations of retirees, and they offer very clear pros and cons.

Age 62: The prevailing advantage of an age 62 claim is being able to get your hands on your benefit as soon as you’re eligible. This can come in handy if you’ve retired early, are wanting to pay down debt, or have one or more chronic health conditions that could shorten your lifespan.

Another reason age 62 is liable to remain a popular claiming age is the possibility that Social Security benefits could be cut in less than a decade. The 2024 Social Security Board of Trustees Report estimates that the Old-Age and Survivors Insurance Trust Fund (OASI) will exhaust its asset reserves by 2033. If the OASI’s asset reserves are depleted, benefit cuts of up to 21% may be needed to avoid any further reductions through 2098. Taking benefits at age 62 is a way to potentially front-run any future benefit cut(s).

On the other hand, collecting your payout at age 62 will lock you into a permanent monthly payout reduction ranging from 25% to 30%, depending on your birth year.

Furthermore, collecting benefits before reaching full retirement age can expose a recipient to a variety of penalties, including the retirement earnings test. The retirement earnings test allows the SSA to partially or fully withhold your monthly benefit if you earn above preset income thresholds.

Age 66: The lure of the middle-ground claiming approach is that your patience will (literally) pay off in the form of a higher monthly benefit. Age 66 represents the full retirement age for anyone born between 1943 and 1954, while those born from 1955 through 1959 have seen their full retirement age increase in increments of two months. Depending on your birth year, waiting just a few years following your initial eligibility can minimize or eliminate any permanent monthly benefit reduction.

On the flip side, the disadvantage to an age 66 claim is that you might leave a lot of Social Security income on the proverbial table if you live a long life. If you live well into your 80s, waiting beyond age 66 would more than likely have resulted in even more lifetime income from America’s top retirement program.

With a clearer understanding of how claiming age can drastically alter what you’ll receive on a monthly and lifetime basis, let’s tackle the million-dollar question: Is it better to collect Social Security at 62 or 66?

While it’s not a cut-and-dried analysis, one comprehensive study provides a clear-cut answer.

Waiting often has its rewards when it comes to Social Security

Five years ago, the researchers at online financial planning company United Income released a report (“The Retirement Solution Hiding in Plain Sight”) that extrapolated the claiming ages of 20,000 retired workers using data from the University of Michigan’s Health and Retirement Study. The purpose of this study was to determine how many of these 20,000 retired workers made an “optimal” choice — i.e., the one that generated the most lifetime income for their situation.

Before digging into the results, let me preface this by noting that none of us knows our “departure date” ahead of time. Without knowing this, there’s always going to be some degree of educated guesswork involved when deciding which age makes the most sense to collect Social Security.

With this in mind, United Income’s study found that only 4% of the 20,000 retired workers examined had made an optimal claim and maximized their lifetime income.

However, the bigger takeaway was the marked variance between actual and optimal claims. According to the findings, 79% of retired workers began collecting their payout at ages 62, 63, or 64; yet only 8% of claims at these three ages would have been optimal on a combined basis. Although age 62 offered a higher probability of maximizing lifetime Social Security benefits than ages 63 and 64, the four earliest traditional claiming ages (62 through 65) were, collectively, the least likely to optimize lifetime payouts.

On the other end of the spectrum, United Income found that 57% of the 20,000 retired workers it studied would have maximized their lifetime income with an age 70 claim. As for age 66, it was truly middle of the road. While it did offer a higher probability of beefing up lifetime payouts when compared to ages 62 through 65, it trailed ages 67 through 70.

Admittedly, there is no one-size-fits-all blueprint when it comes to Social Security retired-worker claims. Everyone has a unique set of circumstances they need to address, which can involve everything from access to retirement plans and tax implications to their marital status and personal health.

For some individuals, such as a lower-earning spouse or someone with a chronic illness, an earlier claim will make sense. But when examined on a broad scale, waiting has been shown to have its rewards when it comes to getting as much as possible out of Social Security.

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Is It Better to Collect Social Security at 62 or 66? A Comprehensive Analysis Offers a Clear-Cut Answer. was originally published by The Motley Fool