Breaking Even with Your Benefits

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A common topic we cover is retirement age. Full retirement age is the age where you can claim your full benefit without any penalties. Many seniors are surprised to find out how significantly you can cut your benefits by taking them too early, and vice versa, how much you can increase them by holding off. The decision on when to claim benefits is different for everyone, and not everyone can wait to claim their Social Security. One of the best strategies to help decide when to claim benefits is to determine your break-even age as US News’ Rachel Hartman suggests.

Break-Even Age

“Break-even age,” may sound a little confusing if you’re hearing about it for the first time. In truth it’s relatively simple. The break-even age is the moment where your benefit, if you waited to claim until or after your full retirement age, starts to surpass the value of your benefit if you had chosen to claim early.

When seniors claim before their full retirement age, their benefits are cut but they can cash out those reduced benefits faster. Other seniors who wait till their full retirement age will have to typically wait several years to claim their benefits, but their benefit amount will be higher. So the question then becomes, is it better to have less money faster and more often, or to wait to claim and receive more money much later?

How to Calculate

Start by calculating your estimated life span, picking the number you expect to live to. A good estimate is somewhere in your 90s. Next, calculate your benefit. You can use the Social Security Administration’s benefit calculator to help determine your general benefit. Remember, based on when you claim, your benefit may require a different equation. For example:

  • Claiming at 62, before full retirement age, you receive 70 percent of your benefit
  • Claiming at 67, at full retirement age, you receive 100 percent of your benefit
  • Claiming at 70, after full retirement age, you receive 120 percent of your benefit

Using the SSA calculator to determine you benefit percentages, multiple that number by however many months you expect to live. That’s your total benefit for the rest of your life.

Let’s assume you have an average benefit of around $1,600 a month if you claim at 67. If you claim earlier at 62, that amount is just $1,120. But claiming at 70 years old, it becomes $1920. Let’s assume again we live to 90 years old:

  • Claiming at 62, we’d receive $376,320 in total benefits
  • Claiming at 67, we’d receive $441,600 in total benefits
  • Claiming at 70, we’d receive $460,800 in total benefits

The difference between 62 and 67 equals around $65,000 give-or-take, which you forgo if you wait to claim. However, if you do wait to claim, you receive $480 more a month. Divide the difference between claiming at 62 and 67 by that number to determine your break-even age:

Break-even age (Months) = (Total Benefit at 67) – (Total Benefit at 62)

(Monthly Benefit at 67) – (Monthly Benefit at 62)

Knowing how much money is up for grabs may have you rethinking when to claim your benefits.

For more retirement tips and tricks, follow along with the Council for Retirement Security.

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