Applying for Social Security is different for everyone. This guide gives you the tools to understand the best age for you.
If you want Social Security advice that takes your whole financial life into account, you can schedule a call with one of our advisors and start the process: Schedule a call.
The best age to apply for Social Security depends on four factors:
- Your life expectancy
- Your Spouse’s benefit (if you’re married)
- Other retirement assets
- When you want to retire
But before you can understand the best age to apply for you, you must understand the essentials of Social Security:
- How it’s funded
- How benefits are calculated
- How the different types of benefits work
- How age affects your benefit
- Benefit increases (COLAs)
- Taxation of benefits
We will explain the essentials of Social Security, and then we will look at the four factors to help you decide when to file.
Deciding when to file for Social Security is one of the most important retirement decisions you will make. Many people will receive over a million dollars in Social Security benefits over their lifetime. In many cases, applying for benefits at the wrong age can affect your plan by hundreds of thousands of dollars over a lifetime.
Here’s what you need to know:
How Social Security Is Funded
Social Security is a “pay as you go program.” In other words, there is a tax on wages for those who are working, and this tax is supposed to cover the payments to those receiving benefits in retirement.
So, those who are working pay for those who are receiving benefits.
Here’s how it works: most wage earners in the U.S. pay FICA (Federal Insurance Contribution Act) taxes. The rate is 12.4% for Social Security and 2.9% for Medicare, for a total of 15.3% on wages. This tax is capped on wages that exceed the income wage base, $137,700 in 2020 (adjusted annually).
For W-2 employees, the tax is split evenly between the employee and the employer, while self-employed persons are responsible for the full 15.3%. The funds collected through these taxes are then distributed as payments to those currently receiving Social Security benefits.
As boomers were working, they were paying more into Social Security than what was being paid out. This created a surplus which we call the Social Security trust fund. Now that boomers are retiring, we have the opposite situation. More money is going out than what is coming in, and the deficit is paid out of this trust fund. More on the trust fund later.
How Are Social Security Benefits Calculated?
Knowing how your benefit is calculated is important for understanding what the best age is to apply for your benefit.
Once you understand how your benefit works, you can understand if working longer will increase your benefit or not. This also lays the foundation for understanding how different ages affect the benefit you receive.
Your benefit is based on your income history, and there are three steps:
- Adjust your earnings history for inflation
- Average the thirty-five highest years of income
- Apply thresholds to that number to determine your monthly benefit
Here’s the process in more detail:
Your Social Security benefit in retirement is based on your highest thirty-five years of earnings.
First, they adjust each year for inflation and bring it into today’s dollars. For example, if you made $25,000 in 1990, that’s about $50,000 today. They do that for each year, and then they take the thirty-five highest years and average them. If you’ve worked less than thirty-five years, there will be some zeros in your calculation.
This means that each additional year of working can raise your benefit quite a bit.
Also, if you made less (even after considering inflation) when you were younger, but now you’re making much more, in this case, additional working years can raise your benefit as well. It’s important to check on your earnings history from time to time, because there can be mistakes on the report. You have three years and three months to correct a mistake before it’s permanent.
The average of your thirty-five highest years in today’s dollars is called your AIME (Average Indexed Monthly Earnings)
There is software that can take your earnings history and tell you the impact each successive year of working will have on your benefit, which can be useful for knowing how long you should continue working.
After averaging your thirty-five highest years of earnings, they apply some thresholds to reduce the amount you will receive when you file for your benefit. The more money you make, the lower the percentage they will replace.
The easiest way to think about this is to see it. For example, in 2020, it looks like this (in monthly income):
The government will replace:
- 90% of the first $960
- 32% of anything between $960 – $5,785,
- 15% of anything $5,785 – $11,075
- Nothing over $11,075
So, they skew the benefit towards lower income workers.
Keep in mind, too, that these numbers change from year to year, but the basic principle stays the same. Unless of course the government decides to change it.
The maximum benefit goes up each year, and for 2021 it’s $3,895 if you delay.
Let’s go through an example. Using the numbers above, if the average of your thirty-five highest years of income was $60,000, that comes out to $5,000 per month.
$5,000 according to the thresholds:
- 90% of the first $960 = $864
- 32% of the rest ($5,000 – $960) is $4,040.32 = $1,292
- There’s nothing in the third threshold
- Your final benefit is $864 + $1,292 = $2,156
This final number, $2,156 in this case, is called your PIA (Primary Insurance Amount).
This is the amount you are eligible to receive at your full retirement age (FRA). For anyone born in 1960 or later, your full retirement age is 67. So the PIA is the amount you can start taking at age 67. The amount you actually receive depends on when you file, covered below.
Calculating Your Full Retirement Age (FRA):
If you were born in 1960 or later, you can skip this part, your FRA is 67, but for everyone else, the government made it more complicated.
It works like this now: If you were born before 1960: 66 plus 2 months for each year from 1954 through 1960. For example, if you’re born in 1957, that’s three years after 1954, so 3*2= 6 months, so 66 and 6 months is your full retirement age.
If you don’t feel like doing the calculation, here’s a Social Security retirement age chart:
|Year of Birth||Full Retirement Age|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 and later||67|
Social Security Keyword Cheat Sheet:
That’s a lot of acronyms to remember, so here’s a handy reference to keep track of them:
- AIME: Your average monthly earnings, in today’s dollars, of your 35 highest earning years
- PIA: the amount you will receive at your full retirement age (FRA)
- FRA: full retirement age—67 if born 1960 or later, 66 through 66 and 10 months if born before (see above).
- COLA (Cost of living adjustments): annual increases due to inflation (discussed more below)
Social Security Benefits for a Spouse
The best age for you to apply for benefits is affected by spousal benefits, you must understand how they work.
Spousal benefits function as a minimum benefit for those who are (or have been) married. A spousal benefit means you have the right to receive up to ½ of your spouse’s benefit. If your spouse’s benefit is $2,000, then you can receive $1,000.
Note that this benefit can change based on when you file and when your spouse files. This discussion is an overview of the concept, but be aware that there are some nuances which can come into play.
Now, in the example above where your spouse’s benefit is $2,000, then if your benefit on its own is $1,500, the spousal benefit doesn’t apply. It only applies when your benefit is lower than what ½ of your spouse’s benefit is. In that case, you get a bump in your benefit up to half of the spouse’s benefit.
The main requirement to keep in mind here is that your spouse must have filed for their benefit already before your spousal benefit kicks in.
The spousal benefit also applies to a divorced spouse. A divorced spouse benefit works the same way, with one main additional rule: Your marriage must have lasted 10 years or longer. It’s also important to note that the ex-spouse is not notified when you file off of their benefit.
Social Security Benefits for Surviving Spouse
Understanding survivor benefits is also important when deciding the best age to file.
If one spouse dies, the surviving spouse is eligible for survivor benefits. If both spouses are receiving benefits, the situation is pretty simple; the surviving spouse keeps the higher of the two benefits and the other benefit goes away.
For example, John and Sue are married. John has a benefit of $1,800 and Sue has a benefit of $2,100. If John dies, Sue’s benefit will stay the same at $2,100. If Sue dies, John’s benefit will get a bump to $2,100.
This is the person with a higher benefit should often wait until a later age to apply for benefits. The highest benefit will last longer—it stays around even after the first spouse dies. When you delay the highest benefit, you increase it even further, thus maximizing your total benefits. More on this below.
If spouses haven’t started receiving benefits yet, then the survivor has the option to start survivor benefits at age 60, while still delaying their own benefit up until age 70. Full details on survivor benefits here.
How Age Affects Your Social Security Benefit
The longer you wait to take benefits, the higher your monthly benefit will be, with 70 (as of right now) as the maximum age to delay benefits. So, deciding when to take your benefit is a trade-off between a lower benefit for a longer period of time versus a higher benefit for a shorter period of time.
Here’s how it works:
You’re first eligible to start taking benefits at age 62, but at a reduced amount. Your benefit is reduced a little bit each month that you take it early, I won’t get into the exact calculation here, but if you take your benefits at 62, the amount is reduced by 30% of your PIA if your full retirement age is 67.
So if you were eligible to receive $2,156, then at 62 your benefit would be $1,509. Ouch. But you do get benefits from age 62–67, where they would have paid you zero during that time if you waited until 67 to start. But now that you’ve filed early, your benefits are reduced permanently through the rest of your life.
So there’s a trade-off between applying early and applying late.
There is also an increased benefit for delaying after age 67. For each year from age 67 to 70, you get an increase in your benefit of 8% per year. So, if you wait until age 70 to start your benefits, and your benefit was $2,156, then your age 70 benefit is $2,673. Not bad.
Summary of how age affects your Social Security benefit:
- Full benefit at your full retirement age
- 30% reduction at age 62
- 32% increase on full benefit at age 70
Here’s a chart showing how age affects benefit:
|Apply at age||If FRA = 66||If FRA = 67|
Here’s how it looks if your benefit is $2,000:
|Apply at age||If FRA = 66||If FRA = 67|
So you can see visually the difference that delaying makes.
For an FRA of 66, there is a 76% increase in permanent benefit between filing at 62 and 70.
Also note that this does not include COLA’s. Those benefits above will actually be higher because of cost of living adjustments.
Which brings me to my next point:
Benefit Increases—The Power of Social Security
The most important part of Social Security is that the benefit increases each year. This is called a COLA (Cost of Living Adjustment.)
Many people choose an age to apply for social security, but don’t account for the COLA. This is a big mistake.
The COLA is powerful because it protects your income from inflation. Think about how much you made twenty or thirty years ago. Could you live off of that today? What were house prices back then? What about gas or cheeseburger prices?
The average retirement lasts twenty to thirty years. On top of that, medical costs tend to increase faster than other types of costs. And we all know medical costs become more important later in life. This is why it’s important to have inflation protection on your income. And that’s exactly what Social Security offers.
Each year the benefit goes up a little bit based on the CPI-W, which is a measure of inflation. The CPI-W differs slightly from the regular CPI by measuring inflation costs for urban workers. HIstorically, it’s been slightly higher than the standard CPI, which is a good thing, but there is talk of changing it to the standard CPI in the future.
Here’s a chart showing the power of the COLA. In this example, you have a monthly benefit of $3,000 claimed at a full retirement age of 67, and an average COLA of 2% per year.
Combine that with delaying the benefit until 70, and the difference is even bigger:
Not bad. This is why filing at the right time is so important.
Before covering how to decide when to file for benefits, let’s talk about Social Security taxation.
Are Social Security Benefits Taxable?
When deciding which age to apply, it’s important to understand the taxation because other assets affect how much your benefit is taxed.
For example, in a year where you receive a buyout from your employer, you may not want to take social security benefits because they will be subject to higher taxes.
Taxation of benefits depends on provisional income.
Provisional income = AGI + one-half of SS benefit + tax-exempt interest
The calculation of provisional income includes income from other sources like IRA withdrawals, pensions, annuities, or part-time jobs. Then, they add half of your total Social Security benefits to it. And finally, they add in any tax-exempt interest, like if you had municipal bonds.
After calculating provisional income, they apply certain breakpoints to determine the amount of taxable Social Security. Once the breakpoints have been reached, some of your Social Security benefits are included in taxable income.
Here’s the breakpoint chart:
|Filing status||Provisional income*||Amount of SS subject to tax|
|Married filing jointly||Under $32,000|
$32,000 – $44,000
Up to 50%
Up to 85%
|Single, head of household, qualifying widow(er), married filing separately & living apart from spouse||Under $25,000|
$25,000 – $34,000
Up to 50%
Up to 85%
|Married filing separately and living with spouse||Over 0||85%|
The key numbers to remember are $32,000 for Married, and $25,000 for single.
If your income is below those numbers, then Social Security is not taxed at all. You may think that doesn’t apply to you because your income hopefully won’t be that low, but keep in mind that Roth distributions don’t count for provisional income. There are planning techniques like Roth Conversions that can take advantage of this and reduce the taxation on Social Security.
When you see 85%, that doesn’t mean an 85% tax on Social Security, it means that 85% of your Social Security benefit is included in taxable income.
For example, if your benefit was $10,000, then $8,500 would be added to your other income when you file your taxes. If you had other Pension and IRA withdrawals of $60,000, then your total income—for tax purposes—would be $68,500.
So, What is the best age for you to Apply for Social Security?
Most of the time, the best age to apply for Social Security benefits is 70.
You may be thinking, “Age 70? Does that mean I have to wait until 70 to retire?” No. you don’t have to wait until 70 to retire. It’s a common misconception that you have to retire and take Social Security at the same time, but you can retire early and delay taking Social Security until the right time.
With that out of the way, we’ll look at why age 70 is usually best, and then we’ll look at the four factors that can change that plan.
The first thing to understand is break-even age. The trade-off between taking benefits early at a reduced amount or delaying benefits for a higher amount has a break-even age. The age when the total lifetime benefits up to that point are equal for both taking early or delaying.
The break-even age is usually right at about age 80.
A break-even of 80 means that if you lived shorter than age 80, you would have received more from Social Security by taking benefits early. If you live longer than age 80, then you would receive more from Social Security by delaying benefits.
Here’s an example of what a break even age can look like. The numbers on the left represent total lifetime benefits paid to you at each age.
The break even age for Social Security is around 80, but the average life expectancy for a couple is age 92, which is one reason why age 70 makes sense.
The 25% guaranteed rate of return on Social Security from age 62 to full retirement age (for someone with an age 66 FRA) is huge. The 32% guaranteed rate of return on Social Security from an age 66 full retirement age to age 70 is even huger (it’s a word, I promise.)
That’s a 77% increase in benefit from age 62 to age 70 if your FRA is 67.
On top of that, those benefits are subject to lifetime inflation increases.
There is no other asset that can promise that level of return with a guarantee. If annuity salesmen make similar promises, they’re lying. Don’t believe them.
However, there are four factors that can change what the best age to apply for Social Security is for you:
1. Life Expectancy
If you have a long life expectancy, you should wait longer to apply for Social Security. If your life expectancy is shorter, then you may want to consider applying at an earlier age.
Here are some important life expectancy stats:
- One in four people will live beyond the age of 90
- The average age people live to is 79 at birth, but that stretches to 83 (men) to 86 (women) if you make it to age 65
- 1 in 10 people live beyond 95
Joint life expectancies are even longer
If you have a normal life expectancy, the odds are slightly in your favor to delay taking benefits. If you took your benefits early and you were to die in your late seventies, you wouldn’t have received much more than if you delayed. But you still have a big chance at living longer, and each year after the break-even point, the advantage becomes significantly larger. By age 90 that adds up to potentially hundreds of thousands of dollars missed out if you took the benefit early.
If, however, your life expectancy is lower due to health concerns, then taking early starts to make more sense. This is because the increased benefit will be in effect for a shorter period, lowering the effect of delaying.
Still, you should account for both spouses’ life expectancies. Even if one spouse has a shorter life expectancy, if they have the higher benefit, they should consider delaying it for the sake of the other spouse.
Which brings us to the next point:
2. Your Spouse’s Benefit
The best age to apply for Social Security is affected by your spouse’s benefit. If there is a big difference between the two benefits, it’s usually best to delay the higher benefit.
First, if you’re married, your joint life expectancy is longer than for a single person. This means there is a much higher chance that one of you makes it to 90—about a 50% chance. In this case, it makes even more sense to at least delay the higher of the two benefits, because when one person passes, the survivor receives the highest of the two benefits.
If we delay the highest benefit, then that benefit stays throughout the lifetime of the couple, maximizing their total earnings from Social Security over lifetime.
In many cases, if the benefit of one spouse is around half the benefit of the other spouse, then it may make sense to take the lower benefit at age 62 and then take the higher benefit at age 70. This is a kind of best of both worlds strategy. There is a floor of income from age 62–70, and then the highest benefit is delayed.
The increase in benefit from delaying is compounded when it’s on the higher benefit.
For example, if A and B are married, and their benefits are: A $1,000 and B $2,000, their benefits at 70 are: A $1,320, B $2,640 (assuming age 66 FRA). Delaying the higher benefit gives extra income of $640 per month, whereas delaying the lower benefit gives extra income of only $320 per month. That’s a 50% difference.
Not only that, but this increased benefit is subject to COLAs (Cost of Living Adjustments).
If inflation is 2% and your benefit is $1,500 per month today, in 20 years, your new benefit would be $2,228.
If both benefits are the same, then you want to look at maximizing each benefit based on each individual’s situation. Specifically, their life expectancy and how long they plan to work, and then the couple’s overall retirement assets.
3. Retirement Assets
The third major consideration for deciding when to choose Social Security benefits is what your other assets are.
In some cases, delaying your Social Security benefit may make sense when you look at life expectancy and maximizing your benefits, but you may not have enough retirement assets to sustain yourself long enough to delay.
In other cases, again it might make sense to delay taking benefits when looking at other factors, but you may have significant assets, and the gain from increased benefits from delaying Social Security isn’t important, or isn’t needed. In this case, maybe the risk of dying young or having poor returns in your portfolio early before taking Social Security is more important. Then, it may make sense to take benefits early in order to have a floor of income and minimize those risks.
When coordinating assets with Social Security Benefits, it’s also important to make sure that your retirement portfolio is built properly.
The key point on when to take Social Security benefits: there are no rules of thumb. There is no “it’s always best to delay,” or “it’s always best to take benefits early.” Each situation is unique and the strategy you choose must reflect a holistic approach, taking all variables into account.
This leads us to one final strategy that we will discuss in relation to Social Security—the spend down plan.
4. When you want to retire
Your planned retirement date affects the best age to apply for Social Security because once you retire, if you don’t apply for Social Security right away, you have to plan to make up that income somehow.
Most people plan to apply for Social Security once they retire, but this may not be the best strategy.
Based on the factors above, if the best age for you to file for Social Security is 70, but you want to retire at age 62, what do you do?
In this case, it’s possible to use what we call a spend down plan. The basic idea is to retire, delay taking Social Security, and spend some assets down in the meantime so that you can meet your income needs until Social Security starts.
The key is to make sure that you have enough assets to cover the spend down.
If you want to retire at 62 and the best age for Social Security is 70, you need enough assets to comfortably bridge the gap. If you don’t have enough, then you must either work longer, or file for Social Security sooner.
Here’s how the spend down Social Security strategy works:
We take a chunk of your portfolio assets, set them aside, and then spend them down to give us permission to delay Social Security. In many cases, this can greatly increase your chances of success in retirement.
For instance, let’s say you want to retire at age 67, in your situation the best time to take Social Security benefits is age 70. What do we do? Well, if your Social security benefit was $25,000 per year at age 67, using the spend-down strategy, we would put $75,000 into an account to spend down over the next three years in lieu of taking Social Security.
The benefit is that it would allow you a permanent increase in Social Security benefit. This can take some of the stress off of the investment portfolio, add some protection against downturns, possibly allow for some tax planning, and even potentially reduce taxation on Social Security benefits.
This is just one scenario to illustrate the potential here. Every situation is unique and has to be looked at on its own. A spend down isn’t right for everyone. In some cases, it may make sense to take benefits earlier.
Once you know your benefit, how far in advance should you apply for Social Security?
It’s important to file for Social Security before your planned filing age, because it takes 3 months from when you file until you start receiving benefits.
You can apply up to four months early, and we recommend that you take advantage of that so you don’t have any surprises.
You don’t want to go through the process of deciding when to file for Social Security only to apply late, miss some payments, and throw your plan off.
Will Social Security Be There When I Retire?
Some people don’t want to delay their benefit because they fear Social Security will run out of money.
The reports of Social Security “running out of money,” have often been exaggerated. The situation is not as bad as it seems, and Social Security will most likely be there when you retire. At worst, it may pay 78% of benefits.
Social Security releases a report each year on the trust fund called the OASDI Trustees Report. The most recent projections are that the trust fund will be depleted between 2031 (the Wharton School of Business study) and 2034 (Social Security Trustees report). The trust fund is declining because there’s more money paying benefits than there is paying Social Security taxes.
But it’s important to remember that Social Security was built to be a pay as you go program, it wasn’t meant to build up a trust fund.
The baby boomer generation was bigger than previous generations, and so when they entered the workforce there were more people paying into Social Security than people receiving benefits. This created a surplus. The government took that surplus and bought bonds with it which became the trust fund. Now that boomers are retiring, the situation is in reverse. There are more people receiving benefits than paying in, so the trust fund is getting drawn down.
Still, there are about ten years before the fund is projected to run out. That gives congress plenty of time to make adjustments—and knowing our government—we can assume they’ll use as much time as they can.
What If the Trust Fund Runs Out?
If the trust fund runs out, the current projections according to the Social Security Trustees report is that enough taxes will be collected to pay 78–79% of promised benefits.
This raises the question, “Should we take our benefit early to lock it in?” But taking benefits early will not exempt you from a cut if the trust fund is depleted. The current law is that the cut is across the board, which means every benefit will be cut by 21–22% whether you are currently receiving benefits or not. Congress would have to pass a bill to change this.
By taking benefits early, you merely lock in the reduction in benefits from filing early.
From what we know currently, the above seems to be the worst-case scenario. It assumes that Congress, instead of stepping up to the plate and agreeing on reform, decides not to take action. We do know that there has been a bi-partisan committee established to work on solutions to the issue, but no bills have been drafted at this time to propose for debate.
In fact, as of December 2020, the trust fund is still increasing. 2020 results:
- Total income: $1.118 trillion
- Total expenditures: $1.107 trillion
- Net increase in assets: $ 11 billion
Possible Solutions to the Social Security Trust Fund
There are many potential solutions to fix the lack of funding, but they all fit into two categories: increasing taxes or limiting eligibility.
Tax increase suggestions include raising the tax rate on wages, increasing the wage base, increasing taxes on those who make more than $300,000, or counting Roth IRA distributions as provisional income. Eligibility related changes include raising the full retirement age, decreasing the delayed credit, or setting up a needs-based reduction for higher income recipients.
None of these suggestions by themselves will completely solve the problem—it will probably take a combination of changes.
People of Social Security age are the largest voting block, so congress doesn’t want to upset them. The most likely will change something. When and what they change, however, is up for speculation.
Your Social Security Checklist
Don’t underestimate the power of your Social Security benefit. It’s an important part of your retirement.
But Social Security was never meant to be a catchall retirement program. It’s built to replace only about 40% of income. You’re going to need other income sources to complete your retirement income picture.
Here’s your social security to-do list:
Don’t look for advice from agents at the Social Security administration office. They will give you the facts, but they are not allowed to tell you what’s best for your situation. You also don’t want to get advice from anyone who offers a one-size-fits all solution. If someone tells you, “Always file early,” or “Always delay,” don’t take their advice. You don’t want to blindly trust advice either.
It’s best to understand the basics of Social Security for yourself so you can feel confident about the best age to apply. This is your retirement after all.
If you want Social Security advice that takes your whole financial life into account, you can schedule a call with one of our advisors and start the process: Schedule a call. Ready to meet with us virtually or in person? Schedule a meeting here.
By Michael Sharpnack
*Advisory services offered through Paul Winkler, Inc. (‘PWI’), an investment advisor registered with the State of Tennessee. PWI does not provide tax or legal advice: please consult your tax or legal advisor regarding your particular situation. This information is provided for informational purposes only and should not be construed to be a solicitation for the purchase of sale of any securities. Information we provide on our website, and in our publications and social media, does not constitute a solicitation or offer to sell securities or investment advisory services, or a solicitation to buy or an offer to sell a security to any person in any jurisdiction where such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction.