Cost Comparison: Retiring at Age 65 vs. 70
Written by
John Csiszar
Edited by
Gary Dudak
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Given the opportunity, most Americans would likely choose to retire at age 65 instead of age 70. However, when it comes to Social Security payments, waiting those five short years can translate to a significant boost in benefits.
While filing for benefits at age 70 is not the best choice for everyone, it’s important to note just how much the difference would be before you make any life-changing decisions. Here’s a quick cost comparison between retiring at age 65 vs. 70.
How Does the Social Security Administration Calculate Your Benefits?
The two factors the Social Security Administration uses to determine your benefits payout are your lifelong earnings record and the age at which you file. While you’re not always in control of how much you earn, you are free to file for your Social Security benefits at any time between age 62 and age 70. However, the earlier you file, the smaller your monthly payout will be — and it will remain so for the rest of your life.
Something to keep in mind when you file for benefits is that the SSA considers age 67 to be “full retirement age” for those born in 1960 or later. So, if you choose to retire at age 65 — which is still the traditional retirement age in the minds of many Americans — you’ll technically be retiring “early” in the view of the SSA and receiving a smaller benefit.
How Much More Can You Earn by Waiting To File?
The SSA allows retirees to claim Social Security benefits as early as age 62. However, this will result in a permanent reduction of 30% over the amount you could receive if you wait until full retirement age of 67. Here’s how much the SSA will reduce your benefit if you file early:
- 5/9 of 1% for each month you file before full retirement age, up to 36 months
- For months exceeding 36, benefits are further reduced by 5/12 of 1% per month, up to a maximum of 60 months
In terms of hard numbers, this means that if you are entitled to a $1,000 monthly benefit at full retirement age of 67, you’ll only receive $700 if you claim benefits at age 62 instead. Filing at age 65 would result in a benefit of about $867. For higher earners that are due a benefit of $3,000 at age 67, that monthly payment would drop to $2,600 at age 65.
Of course, the opposite is also true. For every year that you wait to file from age 67 to 70, your benefit would increase by 8% per year, for a 24% total boost. Waiting from age 65 to age 70 would increase your benefit even more. A $1,000 benefit at full retirement age — worth $867 at age 65 — would jump to $1,240 at age 70. That’s a 43% increase over filing at age 65, and that increase is permanent. Those due a $2,600 monthly payout at age 65 could instead earn $3,720 per month if they waited to file until age 70.
So, Doesn’t It Always Make Sense To Wait To File Until Age 70?
The math of Social Security can be confusing. After all, who wouldn’t want a $3,720 monthly benefit instead of just $2,600? But while your monthly payout will be significantly higher if you wait five years to file, you’ll be missing out on 60 paychecks of $2,600 each, or a whopping $156,000. It will take you more than 139 months — or just under 12 years — just to earn that money back if you wait to file until age 70.
In this scenario, if you die before your 82nd birthday, you would have been better off financially to take the earlier payouts. However, if you live a long and healthy life, you’ll do far better in the long run if you wait to file.
Unfortunately, no one can determine with any certainty how long they will live. This is why there are constant arguments in the financial press as to which is the “best” age to file for Social Security. Certainly, if longevity runs in your family and you take good care of yourself, the odds say you’re more likely to live a long life than someone with chronic health problems and a poor family history. But this is far from guaranteed.
Something else that’s equally important to factor into the equation is your personal financial situation. If you’re well prepared for retirement with plenty of sources of income, you can perhaps afford to wait to file until age 70. However, if Social Security will be your primary source of income, you may need to file early, regardless of your projected life expectancy.
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