When is the best age to take social security? In this blog post, we will crunch some numbers to quantitatively determine the best time to cash in on your social security benefits in retirement, but first, I just want to make the disclaimer here that this is not financial advice.
Brief Explanation of Social Security
Here are a couple quick things to make sure we’re all on the same page.
According to the Social Security Administration, if you were born 1960 or after, you will receive your full Social Security benefits at the age of 67. You also have the option to take benefits as early as age 62 and get less per month or as late as age 70 and get more per month.
You can log on to ssa.gov and use your personalized estimator to discover the best time for you to file for benefits.
In my case, my full benefit amount at age 67 is just under $2,400 per month whereas this decreases to $1,600 per month if I take my benefits early at age 62 and on the other hand goes all the way up to $2,900 per month if I wait until age 70.
When to Take Social Security
While the information on ssa.gov is helpful, it is still kind of hard to determine the best age to take social security, so what I did was graphed the cumulative earnings for 6 different scenarios until age 100 including taking benefits at 62, 64, 67, 68, 69, and 70.
Right away, you’ll notice where most of these lines intersect (somewhere around age 80) and this is going to be the break even point.
When we zoom in to this section of the graph, you’ll see that we have multiple break-even points: some as early as age 78 and others as late as age 85 depending on when you initially cashed in on social security.
To better visualize what’s going on here, I created this simulation (starts at 1:41 in the video below) which depicts the difference of taking social security at different ages.
Notice that by age 70, someone who has been collecting benefits for the past 8 years since 62 has already amassed over $160,000 while someone who deferred until age 70 hasn’t even received their first paycheck yet.
Something very interesting happens at age 78. This is the first time that the cumulative benefits of not taking social security early pay off, and what I find even more interesting is that this happens precisely at the age 78 and 8 months old which is exactly the average life expectancy in the United States.
Waiting to take your social security begins to pay off in your late 80s and beyond as these higher monthly payments allow the cumulative benefits to grow at a much faster rate, and by the age of 100, you have earned an additional $300,000 if you took your benefits late at age 70 versus early at age 62.
But let’s be realistic here. Not that many people live to be 100.
According to the Social Security Administration in 2016, less than 1,000 of every 100,000 men and less than 3,000 of every 100,000 women lived until age 100. Statistically speaking, you have a much better chance of living until your late 80s or early 90s, and this is the range I would use to target the best time to take social security.
By rewinding the above Social Security simulation back to age 90, and assuming you did not take social security early, there’s a worst case scenario difference of less than $48,000 between taking your full benefit at age 67 and deferring to age 70. This difference is further diminished as we move back in time and actually bottoms out at age 80.5 across the board for me with a worst case scenario difference of just $16,398 which is what I ultimately consider the breakeven age. In other words, regardless of when you started to take social security benefits, if you live until age 80.5 and not a day longer, you made the right choice.
Best Age to Retire for Social Security?
Deciding when to take Social Security benefits is a bit of a gamble. If you want to maximize your monthly payment and defer your social security checks until age 70, but die at age 69, you get no benefit whatsoever.
At the end of the day, if you need the money, go ahead and take social security early at 62. On the other hand, if you can wait until age 67 and expect to live until age 80, then this might be your best bet.
On last important consideration is your health. You will likely be most healthy at age 62 and actually be able to enjoy your money whereas your health is not guaranteed as you get older.