Just a few years ago, almost no one waited this long to apply for retirement benefits.
One of the most impactful decisions on your retirement finances is the age at which you claim Social Security.
Most people become eligible for retirement benefits starting at age 62. But claiming as soon as possible comes with the drawback of a reduced benefit. To get the biggest check possible from Social Security, most retirees have to wait until 70 to claim. And more and more seniors have decided it’s worth the wait.
The percentage of seniors waiting until 70 to start collecting benefits has climbed dramatically since the start of this century. There’s a clear reason, and it should become an even more attractive option over the next few years.
Here’s what seniors need to know.
The big change in claiming ages
The last 25 years have seen a significant increase in seniors delaying Social Security until age 70, with the trend accelerating in the past 15 years or so. Just 0.8% of men and 1.6% of women claiming Social Security in 2009 were 70 or older. By 2022, those percentages climbed to 8.1% and 8.8%, respectively.
But the big shift in claiming age predates the turn of the century. It goes all the way back to 1983 when Congress passed major Social Security reforms.
There were two key parts of the reforms that changed retirees’ behavior. First, there was the gradual increase in the full retirement age from 65 to 67. Anyone born prior to 1938 would still get their full benefit at age 65, but full retirement age would increase by 2 months for each year someone was born after 1938 until reaching 66 for anyone born in 1943 or later.
A second tranche of increases would begin starting for people born after 1954, again increasing 2 months per year until reaching 67 for those born in 1960 or later.
One of the effects of the increase in retirement age was a greater penalty for claiming at age 62. While those with a full retirement age of 65 would receive 80% of their normal benefit if they claimed at 62, those with a full retirement age of 67 who claimed at 62 would receive only 70% of their normal benefit.
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Another effect is that retirees have fewer years to collect delayed retirement credits, which increase benefits for delaying past full retirement age up to age 70. In order to balance the impact, the reforms also included an increase in the amount of the delayed retirement credit.
Previously, retirees could increase their benefit by 3% per year, up to 5 years (from 65 to 70). That gave them a maximum of 115% of the benefit they would receive at age 65. The 1983 reforms gradually increased the delayed retirement credit to 8% per year. That gave those born between 1943 and 1954 the opportunity to receive up to 132% of their full benefit.
Incentivizing a delay in Social Security
The changes gave retirees clear incentives to wait longer to claim benefits. Before, you could receive 80% of your benefit starting at age 62. That would only increase to 115% at 70, a 44% increase in the value of your check for waiting eight years.
For those contemplating retirement claims at the turn of the 21st century, though, they had to decide between 75% of their full benefit in 1999 or 132% of the value in eight years, a 76% increase.
There’s another shift occurring right now with the second tranche of increases to full retirement age, though it’s not as big a jump. Seniors turning 62 in 2024 have a full retirement age of 67. That means they’re only eligible for 70% of their full retirement benefit if they claim this year. If they wait until they turn 70, they’ll receive 124% of their full benefit, a 77% increase. As such, the incentives to wait are growing.
Another factor pushing seniors to wait
On top of the increased financial incentive for delaying Social Security, waiting until 70 makes more sense for more people every year. That’s because average life expectancy for seniors continues to improve.
The biggest factor determining whether you should claim benefits early or delay is how long you expect to live. If you have health problems that threaten your life expectancy, it usually makes sense to claim earlier. If you’re in better-than-average health, you’ll get more from Social Security over your lifetime by waiting longer to apply for benefits.
While the dynamics are more complex for couples, it usually makes sense for the higher-earning spouse to wait until age 70. If the higher-earning spouse passes away, their partner can receive survivors benefits. These can boost the surviving spouse’s monthly check to equal the higher of the two spouses’ original benefits.
With the growing incentive for delaying benefits and the increased likelihood of living long enough for delaying benefits to pay off in the long run, it shouldn’t be a surprise to see more and more seniors wait until age 70 to claim Social Security. Most readers will be best off joining this growing group too.