Retirees choosing the most-popular claiming age may be leaving Social Security income on the table.
For most Americans, Social Security isn’t just some program. It’s a necessary tool that provides a financial foundation for millions of Americans as they age. According to the Center on Budget and Policy Priorities, Social Security is responsible for pulling 21.75 million people out of poverty each year, including 15.36 million adults over the age of 65.
However, Social Security benefits aren’t simply handed out for being an American citizen. Most people will earn their payout by working over the course of many decades.
But what retired workers receive each month from Social Security, assuming they’ve earned the requisite 40 lifetime credits, can depend largely on when they decide to take their payout.
In 2022, age 66 was the most-popular claiming option for both men and women. The big question is: What can a retired worker expect to receive each month from Social Security at age 66? Let’s take a closer look.
A quartet of factors influences your Social Security benefit
Before diving into the specifics of what a retired worker can expect to receive at age 66 from Social Security, it pays to understand what factors are responsible for influencing your benefit. Removing all the ancillary factors that can impact how much of your benefit you get to keep, such as federal and state-level taxation, as well as potential “penalties” for early filers, there are four components responsible for determining your monthly Social Security benefit:
- Earnings history
- Work history
- Full retirement age
- Claiming age
The first two factors go hand in hand and are somewhat self-explanatory. If you earn more, you’re very likely going to receive a larger Social Security benefit during retirement. The Social Security Administration (SSA) takes your 35 highest-earning, inflation-adjusted years into account when calculating your payout. Just be aware that for every year less 35 worked, the SSA averages a $0 into your calculation. Therefore, to truly maximize what you’ll receive, you’ll want to work at least 35 years, if not more.
The third element is what’s known as your full retirement age, and it’s entirely determined by your birth year. Your full retirement age represents the age where you become eligible to receive 100% of your retired-worker benefit. Since the program’s inception, the full retirement age has ranged between 65 and 67.
The fourth factor, and the one that can really pump up or deflate your monthly Social Security benefit, is your claiming age. The Social Security program incents patience and will reward eligible workers with an up to 8% increase in their eventual monthly payout for every year they hold off on taking their benefit, beginning at age 62 and continuing through age 69, as shown in the table.
What’s the average Social Security benefit at age 66?
Your claiming decision can have a huge impact on what you’ll receive each month from Social Security. Based on the table, an early claim at age 62 can result in a permanent reduction of up to 30%, depending on your birth year. Meanwhile, waiting all the way until age 70 (i.e., when Social Security benefits stop increasing) can lift your payout by between 24% and 32% above what you’d have received at your full retirement age.
With a comprehensive understanding of how your payout can shift higher or lower, depending on these factors, let’s double back to the important question at hand: How much can retired workers expect to receive at age 66?
According to data from the SSA in December 2022, 2,273,047 retired-worker beneficiaries were 66 years old and receiving a Social Security benefit. The average Social Security benefit to these individuals was $1,719.85 per month, which works out to about $20,638 when annualized over a year.
Keep in mind that the SSA’s $1,719.85 figure isn’t solely age 66 claimants. Rather, it’s the average benefit of every retired worker beneficiary who happened to be age 66 in December 2022. This means these retirees could have begun taking their payout at age 62, or any age leading up to 66, in addition to age 66.
There are two likely reasons age 66 has been a popular claiming age for so many years.
To begin with, it’s a midpoint among the range of traditional claiming ages (62 to 70). For persons born between 1943 and 1954, age 66 also served as their full retirement age. Thus, an age 66 claim offers a nice balance between waiting a few years and allowing your payout to grow, while also collecting 100%, or very close to 100%, of your full retirement benefit. Not everyone has the luxury of waiting until age 70 before taking their payout.
The other factor responsible for lifting the popularity of age 66 claims is the disability conversion. Workers with disabilities who receive Social Security benefits will automatically have those benefits shift to retired-worker benefits once they reach full retirement age. Though it’s a bit of a technicality, it’s a prime reason why age 66 is the most-popular claiming age.
Claiming benefits at age 66 is popular, but far from optimal
On paper, an age 66 claim would appear to make a lot of sense. Waiting just a few years to achieve or near 100% of your full retired-worker benefit looks like a sensible trade-off for most workers. But digging a bit deeper suggests otherwise.
Four years ago, online financial planning company United Income analyzed the claims of approximately 20,000 retired-worker beneficiaries using data from the University of Michigan’s Health and Retirement Study. The purpose for researchers was to extrapolate these claims to determine if retirees made an “optimal” decision.
In other words, researchers sought to answer whether these claimants took their payout at the age that provided them with the highest lifetime benefits. Be aware that the highest lifetime benefit may not mean the largest monthly benefit.
Admittedly, there’s always going to be some guesswork involved with a Social Security claim. The only way we can concretely know which age is best is to know the date of our passing — and that’s, thankfully, something none of us knows. With this caveat in mind, United Income’s research led to an interesting conclusion.
Whereas most retired workers chose to take their benefit prior to reach their full retirement age, the vast majority of optimal claiming ages occurred after full retirement age. Age 70 would have been the optimal claiming age for 57% of the roughly 20,000 claimants examined. Age 70 was followed by ages 67, 69, and 68, in that order, in terms of optimal claims.
As for age 66, it landed right in the middle. People claiming at age 66 had a higher probability of an optimal claim than those taking their payout from age 62 through age 65, but trailed ages 67 through 70. All told, only around mid-single-digit percentage of age 66 claimants made an optimal decision.
To boot, some age 66 claimants may be subject to the retirement earnings test. If you begin taking your Social Security benefit prior to reaching your full retirement age, the SSA can withhold some, or all, of your benefit, depending on how much you earn. Although the income thresholds are reasonably high for early filers set to hit their full retirement age in the current year, it can still be an unpleasant surprise for some age 66 filers.
