Social Security's most important number for retirement may not be what you think it is

Preparing for retirement usually means answering a lot of questions. How much will I need saved? What will my expenses look like? What kind of lifestyle am I hoping to enjoy?

There are plenty of factors that vary from person to person, but one of the most pressing for many people is when they're going to claim Social Security benefits.

If you're blessed to have a nice retirement nest egg, Social Security will be a nice-to-have supplemental retirement income source. For most Americans, though, this isn't the case. Social Security plays a major role in many people's finances during retirement, so the timing of one's claim is a huge decision.

There are many numbers you're expected to know regarding Social Security -- from full retirement age to wage base limits and cost-of-living adjustments (COLAs) -- but one of the most important numbers is 82 ½, because it can be a key part in helping you decide when to claim benefits.

It all starts with your full retirement age

Your full retirement age (FRA) is significant because it tells you when you're eligible to receive your full Social Security benefit. Using the benefit amount you're entitled to at full retirement age, Social Security calculates any adjustments to your monthly check when you decide to claim before or after FRA.

You can claim benefits as early as 62, but your monthly payout will be reduced based on how many months away your full retirement age is. For example, someone whose full retirement age is 67 would have their monthly benefit reduced by 20% if they claim at 64 and 30% if they claim at 62.

On the other hand, you can delay benefits past your full retirement age, increasing them by two-thirds of 1% each month, or 8% annually.

It's bigger than just the monthly benefit

The thought of increased monthly benefits is appealing but may not be worth it. As an example, let's use someone whose full retirement age is 67 and who has a monthly benefit of $1,900 (the estimated monthly average for retired workers in Jan. 2024 is $1,907). If they delay benefits until 70, they can expect a 24% increase to their monthly payout, bringing it to $2,356.

Based on a potential claim at 67 or 70 with those numbers, here's how much this person would collect in total by different ages:

Calculations by the author.

Even with the increased benefit, someone claiming at age 70 would collect less in cumulative benefits by age 80 than if they claim at 67. By age 85, it flips, and claiming at 70 results in higher total income.

For someone debating between claiming benefits at 67 (most people's full retirement age) or waiting until 70, the magic number is 82 ½. That's your break-even age: the earliest point when claiming at 70 is advantageous to claiming at 67.

Use your break-even age as one part of the decision making

Knowing this break-even age, it's your job to assess your personal situation to help determine if delaying benefits is worth it.

For someone with a personal or family history of health concerns, claiming earlier may be the wise choice to maximize benefits. For someone with a higher life expectancy who can comfortably live off their retirement savings for a few years, delaying benefits to increase the monthly payout makes sense.

Everybody's situation is unique, so carefully considering key factors, including your break-even age, is important. Make sure you weigh your current financial needs, retirement goals, and potential retirement income when doing your research.

Making an informed decision can not only put you in a better financial position, but it can also bring well-earned peace of mind during your retirement years.

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