What Is the Social Security ‘Break-Even’ Point? Here’s How To Time Out Delaying Benefits To Achieve It

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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.

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Waiting until age 70 to collect Social Security 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.

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Claiming Social Security as early as age 62 means you will amass several years’ worth of monthly payments as a financial head start, vs. 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.

Put another way, 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, The Motley Fool reported. 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.

In nearly all cases, it will take many years to reach the break-even point. Motley Fool ran calculations based on a monthly payment of $1,000 at full retirement age, which is 67 for most current workers. If you are due $1,000 a month at full retirement age, then 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 77.5-years-old. Waiting until your full retirement age of 67 means you’d break even when you’re a little over 78.5 years old. If you wait until age 70 to collect Social Security, you would be a little under age 80.5 to break even.

Because 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.

As GOBankingRates previously reported, waiting until age 70 to collect instead of age 62 increases your total monthly payment by more than three-quarters, according to a paper that appeared in the “Journal of Financial Planning.” 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 $182,370 in today’s dollars.

But as the AARP pointed out in a December 2022 blog, 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. 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.

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This article originally appeared on GOBankingRates.com: What Is the Social Security ‘Break-Even’ Point? Here’s How To Time Out Delaying Benefits To Achieve It