October is National Retirement Security Month and, thus, a good time to focus on an important question – When should I take my Social Security benefits?  While there are a number of factors to consider when making that decision, don’t overlook the role of Life Expectancy, because how long you expect to live has a big influence on the “best age” to claim Social Security benefits. 

What determines how much Social Security I will get?

Let’s first understand how your benefit is calculated: it is based on the average of your monthly work earnings over your lifetime while contributing to Social Security via payroll taxes. At your full retirement age, or “FRA” (somewhere between 66 and 67 depending on your year of birth), you will get a percentage of your average monthly lifetime earnings (indexed for inflation). However, if you claim Social Security before your FRA it will be reduced and, conversely, if you wait past your FRA to claim you will get bonus Delayed Retirement Credits (DRCs). Those DRCs can increase your monthly amount by 8% per full year of delay. So, to summarize, at your FRA you get 100% of your earned Social Security benefit, but claiming early means a cut of up to 30% (if claimed at 62), and waiting longer than FRA to claim can yield a benefit up to 32% higher (if claimed at 70). The monthly benefit amount is either reduced or increased if claimed before or after FRA (up to age 70 when the maximum benefit is attained).  And how long you live has much to do with what your cumulative lifetime Social Security benefits will be.

How do you estimate your life expectancy?

Of course, no one knows how long they will live, but it’s possible to make an educated guess to facilitate your retirement planning. First, look at your family history – if your parents (and siblings) all enjoyed a long, healthy life, that usually suggests that you will too. Of course, your current health status needs to be included in that thought process. Also, you can go to Social Security’s Life Expectancy Calculator which will tell you how many years, on average and given your current age, you likely have yet to live. Statistically, the average 65-year old male can expect to live until about 84, and the average 65-year old female to about 87.  However, if you want to get a more personal estimate of your individual life expectancy, you may want to use the tool we use at the AMAC Foundation, found at our website – www.socialsecurityreport.org/tools/life-expectancy-calculator/.  This tool not only considers your age and family history, but also your current health and your lifestyle to arrive at your probable longevity, which can then be used when formulating your retirement plans.

Determining your Social Security “break-even age”

Of course, life expectancy is only one factor in deciding when to claim Social Security (your need for the money in retirement is important too), but your potential longevity is a way to understand your “break-even age” – the point at which you will get the same amount of Social Security money when Social Security is claimed at different ages.

The Social Security Administration often says it doesn’t matter when you claim – they say that if you claim early you’ll get smaller payments but more of them, and if you delay claiming, you’ll get larger payments but fewer of them. But that doesn’t consider today’s longevity, and there’s a wide gap in benefit amounts when claimed at different ages – benefits claimed at 62 are up to 30% less then when claimed at full retirement age, and about 75% less than when claimed at age 70. And knowing the age at which, within that 8-year claiming window, you would breakeven moneywise (by choosing a later age to claim) is why your life expectancy is an important factor.

If, for example, you wait until your full retirement age to claim, when you are about age 78 you will have received the same amount of Social Security money that you would have received had you claimed at 62.  So, if your life expectancy is longer, you will “break even” at 78 and, thereafter, you will collect more in cumulative lifetime Social Security benefits if you wait until your FRA to claim.  And if your life expectancy is at least “average” (84 for men and 87 for women), and you wait until you are 70 to claim, then you should “break even” at about age 81 and, again, get more in cumulative lifetime benefits by claiming at age 70. If your life expectancy is long, you’ll generally benefit financially by waiting longer to claim Social Security.

Knowing your life expectancy and your “breakeven age” is a good first step in deciding when to claim your Social Security benefits in retirement, but these aren’t the only things.  Your complete personal circumstances should be looked at, including how urgently you need the money and whether or not your dependents (including your spouse) will be entitled to additional benefits based on your record.  Survivor benefits in the event of your death should be considered as well.

To get answers to all your questions, the AMAC Foundation offers free Social Security Advisory Services by AMAC-certified and NSSA®-accredited experts. Contact us via email at SSadvisory@amacfoundation.org, or by phone at 1(888) 750-2622 for personal and individual answers to all your Social Security questions.