Applying for Social Security benefits can be a complex process as there are many rules and qualifications that affect how much retirees receive and it is not always easy to obtain accurate information.
But the amount of money you can claim as monthly benefits can vary widely based on a variety of factors, including when retirees apply for Social Security, how long they work, and how much they make over the course of their careers. This will earn you an additional $1,983 per Social Security check, or $23,796 annually.
Choice of benefit entitlement
Retirees have a fair amount of discretion over when they can claim Social Security benefits. You can claim them as early as age 62 or as late as age 70, but the age at which you claim benefits plays a big part in determining the size of your monthly Social Security checks.
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If a pensioner takes benefits early, there is a penalty, which can be as much as 30% discount on your Primary Insurance Amount (PIA), the benefits a pensioner is entitled to at their Full Retirement Age (FRA), which is 67 years has for those born after 1960. The Social Security Administration (SSA) reduces benefits by 5/9ths of 1% for each month benefits are drawn before your FRA. After 36 months, benefits are reduced by 5/12 of 1%.
However, if you later claim benefits, your benefits will increase by 2/3 of 1% for each month you delay, which is 8% per year, or 24% overall over the three-year delay. As you can see, determining when you claim benefits can make a big difference in how much you ultimately earn.
Note, however, that the amount of your benefits also depends on how long you work and how much you earn. When calculating your PIA, the SSA uses a retiree’s highest 35 years of earnings. To receive the maximum benefit, retirees must also earn the maximum amount of wages that SSA can tax each year, a number known as the benefit base, and therefore pay taxes.
The benefit base is usually a salary only earned by high-income people, and it often increases to keep up with inflation, so it can be difficult to keep up every year. For example, the benefit base in 2022 was $147,000. This year, the benefit base increased to $160,200 due to extremely high inflation last year.
This will earn you an additional $1,983
Although it is difficult to qualify for the maximum Social Security check based on the earnings required, the maximum monthly Social Security check is $2,572 if you qualify and then start collecting Social Security as early as possible at age 62.
However, if you wait until age 70, the maximum monthly Social Security check is $4,555, which is a $1,983 difference.
While retirees can certainly improve their monthly Social Security checks by delaying benefits, this really shouldn’t be the driving factor in deciding when to claim benefits. The decision should boil down to a person’s financial and health status. If you can afford to wait, it definitely makes sense, but sometimes you can’t.
