The Social Security program was first introduced almost a century ago in 1935 with the aim of fighting elder poverty. Today, the insurance program has amassed millions of beneficiaries and has become a cornerstone of support to vulnerable individuals all across the country by providing them with a stable monthly income.
Simply put, your retirement benefit amount is determined in relation to your income earned during your working years since 12.4% of your wages will have been paid into Social Security payroll taxes (the employee pays 6.2% and the employer covers the remaining 6.2% generally). This does not necessarily mean that you benefit amount will be set in stone based off your earnings alone. In fact, another factor that could drastically impact the amount you receive each month is the age at which you begin claiming. This is sometimes referred to as the “8 year rule of Social Security” and here is what you need to know about when to begin claiming retirement.
The 8 year rule of Social Security
Social Security benefits can be claimed starting at age 62, however, the program also has a “Full Retirement Age” in place and due to this, claiming before reaching the full retirement age will likely result in a decrease to your benefits. Conversely, delaying claiming until you are 70 which is past the full retirement age will result in an even higher benefit amount. As such, being strategic about when you begin claiming in during this 8 year period could make the world of difference to your retirement income and by extension, your quality of life.
“Filing at 62 gives you a longer runway, but with smaller checks. Waiting until 70 gives you a larger monthly income, but requires you to bridge the gap. That bridge, how you cover the years between, is where the strategy lives,” explains Preston Cherry, founder of Concurrent Wealth Management.
In 2025, the full retirement age for those born in 1959 is 66 years and 10 months, and in 2026, this will increase one final time to 67 years for those born in 1960 and later. Taking $1,000 as a base benefit at full retirement age as an example, if a retiree begins claiming at 62, they will lose around 30% of the benefit bringing their monthly check down to $700. On the other hand, by holding off until age 70, the benefit increases at a 8% per year. Assuming a full retirement age of 66, by delaying claiming until 70, your benefit will increase to 132%, making your monthly checks amount to $1,320.
Timing is everything
Circumstances will naturally differ from person to person so whilst claiming at age 70 is an ideal option for some, claiming at 62 or 63 could be a better option for others.
“It is difficult to provide a rule of thumb since individuals’ situations are so different,” explains Clark Randall, director of financial planning at Creekmur Wealth Advisors. “Having said that, there is a general trend that the longer one’s life expectancy, the later he or she should file for Social Security, all things being equal.”
“If you need the cash flow and are retired, then collecting at 62 is the ‘easy’ button. Other than that, it gets complicated,” Elizabeth Scheiderer, principal and financial advisor at Signal Tree Financial Partners also notes.
Filing too early or too late is not as much an issue as the fact that many individuals are making these decisions with a limited knowledge of the system and their compete range of options. An Allianz Life survey has revealed that “53% of Americans report having limited knowledge of Social Security or how it fits into their retirement plan.”
It is also worth noting that filing early does not necessarily mean that you are now locked in with no other options. If you happened to have claimed early but are now rethinking your decision, the option to potentially suspend your benefits is available. This way, you benefits have more time to grow until your full retirement age. Furthermore, if you filed within the past 12 months, your application can simply be withdrawn. You will, however, have to repay the benefits you received during this time and this will then basically reset your claim.
“The only certainty is you may never know if you made the right decision. If we had a crystal ball on life expectancy, you would know the exact month you should start to collect. If only!” Scheiderer adds.