How your monthly benefit is calculated
To understand why retiring at age 64 provides more money than at 62, it's essential to know how the Social Security Administration (SSA) determines your monthly benefit. The calculation is based on several factors, primarily your average indexed monthly earnings (AIME) over your 35 highest-earning years.
The SSA calculates a Primary Insurance Amount (PIA) based on your AIME. The PIA is the amount you receive if you claim benefits at your full retirement age (FRA), which is determined by your birth year. For anyone born in 1960 or later, your FRA is 67.
The impact of claiming early
If you begin receiving Social Security benefits before your FRA, your monthly payment will be permanently reduced. The reduction is based on the number of months you receive benefits before reaching your FRA. The earlier you claim, the larger the reduction.
For example, if your FRA is 67 and you claim at the earliest possible age of 62, your monthly benefit is reduced by nearly 30%. However, waiting just two years to claim at age 64 means a smaller reduction. This difference in reduction rates is why your monthly payout is higher at 64 compared to 62.
Comparing retirement at age 62 vs. 64
Let's consider a hypothetical individual with a full retirement age of 67. If this person's PIA (the monthly benefit at age 67) is $2,000, here's how claiming at different ages would break down:
- Claiming at age 62: The benefit is reduced by 30%, resulting in a monthly payment of $1,400.
- Claiming at age 64: The benefit is reduced by approximately 20%, resulting in a monthly payment of $1,600.
This simple example illustrates a fundamental aspect of Social Security: delaying your claim, even slightly, increases your monthly income for life. The total dollar amount received over your lifetime is influenced by your life expectancy, making the breakeven point a crucial consideration.
Factors to weigh in your decision
While receiving a larger check by waiting is appealing, it's not the only factor. Your retirement decision should be based on your personal circumstances. Here are some things to consider:
- Life Expectancy: If you are in good health and expect to live a long life, delaying your claim often results in a higher cumulative lifetime benefit. Conversely, if you have health concerns or a shorter life expectancy, claiming earlier may provide a higher total payout by receiving benefits for a longer period.
- Financial Needs: If you need the income immediately to cover living expenses, healthcare costs, or other needs, claiming at 62 might be the right choice. However, if you can comfortably live off other savings or continue working, waiting is financially advantageous.
- Spousal and Survivor Benefits: Your claiming age affects benefits for your spouse as well. A higher earner who delays claiming can provide a larger potential survivor benefit for their partner. This is a crucial consideration for couples, especially if one spouse has a significantly lower earnings record.
- Continued Employment: If you plan to continue working, claiming before your FRA can cause your benefits to be temporarily withheld if your earnings exceed a certain limit. There are no earnings limits after you reach your FRA. The years you work while delaying can also be added to your earnings record, potentially increasing your final benefit amount.
Comparison: Retiring at 62 vs. 64
| Feature | Retiring at Age 62 | Retiring at Age 64 |
|---|---|---|
| Monthly Benefit | Significantly reduced | Moderately reduced, higher than at 62 |
| Benefit Duration | Longest possible | Shorter than at 62, longer than at FRA |
| Lifetime Payout | Higher if life expectancy is shorter | Higher if life expectancy is longer (past break-even point) |
| Financial Needs | Provides income earlier to meet immediate needs | Allows more time to grow retirement savings |
| Spousal/Survivor Benefits | Lower potential benefit for spouse | Higher potential survivor benefit for spouse |
| Earnings Test | Subject to earnings limits if you continue working before FRA | Subject to a lower earnings limit until you reach your FRA |
Making an informed choice
Choosing when to start your Social Security benefits is a personal and complex financial decision. While the simple answer to do you get more money if you retire at 64 instead of 62? is yes, a higher monthly check is only one part of the equation. It's crucial to assess your health, financial situation, and long-term goals before making a decision. You can create a personal account on the Social Security Administration's website to access your specific earnings record and use their calculators to help with this process. Create a Personal my Social Security Account here.
Conclusion
Delaying your Social Security claim from age 62 to 64 offers a clear financial advantage in the form of higher monthly payments. This is due to the permanent reduction being less severe than if you claimed at the earliest possible age. For those with a long life expectancy, this can mean a much higher total lifetime benefit. However, the decision should be tailored to your individual needs, weighing factors like immediate financial requirements, health, and spousal benefits. By carefully evaluating all the variables, you can select the timing that best supports your healthy and financially secure retirement.
