How Long You Need To Live To Hit the Social Security ‘Break-Even’ Point
Written by
Vance Cariaga
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Amen Oyiboke
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One of the biggest financial decisions you will make as a retiree is when to start claiming Social Security benefits. You can claim them as early as age 62, but the earlier you claim them, the lower your monthly payment.
Waiting until age 70 to collect Social Security retirement benefits ensures the highest possible payment, but that’s not always the best strategy. A lot depends on factors such as life expectancy and immediate financial needs.
Claiming Social Security payments as early as age 62 means you will amass several years’ worth of monthly payments as a financial head start, versus waiting for the bigger check you will get at a later age. One thing to consider when making your decision is the “break-even” point, at which the dollar value of claiming benefits later surpasses the value of taking them early. So, how do you determine this point, and does it make it worth it to wait?
Quick Take: Breaking Down the Break-Even Point
The break-even point is when the cumulative benefits received from retiring at a later age equal the cumulative benefits received from retiring at an earlier age. This will vary based on when you decide to collect benefits. Another factor is the size of your Social Security check, which is determined by the amount you contributed to the program through payroll taxes while you were working.
Simply put, your Social Security account break-even age often falls between 77 and 82, depending on the claiming ages compared and the specific benefit amounts. However, this is a simplified calculation and doesn’t account for the time value of money or opportunity costs if you have other income sources. Here are a few key takeaways:
- In nearly all cases, it will take many years to reach the break-even point, thanks to the complex bureaucratic layers of the Social Security Administration and its approaching insolvency.
- If you are, for example, on a monthly payment of $1,000 at full retirement age, which is 67 for most current workers, you are due $1,000 a month, so your benefit by claiming at age 62 would be reduced by 30% to $700.
- In this scenario, waiting until age 65 to file for benefits means you would break even when you’re a little over 77 1/2 years old.
- Waiting until your full retirement age of 67 means you’d break even when you’re a little over 78 1/2 years old.
- If you wait until age 70 to collect Social Security, you would be a little under age 80 1/2 to break even.
Determining Your Best Time for Collecting Social Security
It’s worth mentioning that since it takes so long to break even, waiting until a later age to claim Social Security would not be a good strategy if you have health issues that will shorten your life expectancy, or if you have heavy debts you need to pay off. For everyone else, it makes sense to wait as long as possible.
Waiting until age 70 to collect instead of age 62 increases your total monthly payment by more than three-quarters, experts say. A separate study by officials at the Federal Reserve, Boston University and Opendoor Technologies found that waiting until age 70 to claim Social Security would boost recipients’ lifetime discretionary spending by a median of $182,370 in today’s dollars.
You can receive up to 132% of your monthly benefit if you wait until 70. This means that you have to decide between receiving fewer Social Security checks that are significant compared to a higher amount of checks at a lower rate.
To qualify for the highest possible benefit, you must have worked for at least 35 years, with income at or above the calculated Social Security wage base limit, and then delay claiming benefits until age 70.
Other Factors Impacting Your Social Security Decision
As the AARP pointed out previously, your decision on whether to wait depends not just on factors like life expectancy and financial status but also on whether your spouse will depend on your benefits after you die. Starting your payments earlier could mean lower survivor benefits for your spouse.
Your decision might also be affected by other retirement assets you have, such as a pension or individual retirement account. Experts point out that you’ll want to think about rising inflation rates on top of your health because the timing of increased expenses could impact your budget as a retiree.
When weighing the Social Security break-even point, you can benefit from consulting with a professional financial advisor to help ensure you come up with the best strategy using a break-even calculator and analyzing your financial situation.
Martin Dasko and Caitlyn Moorhead contributed to the reporting for this article.
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