One of the most important decisions you’ll make about Social Security is when to start collecting benefits. You can begin as early as age 62, but doing so permanently reduces your monthly payments. Waiting until full retirement age — 66 to 67, depending on birth year — increases your benefit, and delaying all the way to 70 earns you your maximum possible amount.
Despite the financial advantages of waiting, most retirees aren’t delaying their benefits. A new report found the age Americans most commonly start Social Security — and what that choice means for long-term retirement income.
Most Retirees Claim Social Security Before Full Retirement Age
According to a new report from the Transamerica Center for Retirement Studies, the median age at which retirees started receiving benefits is 63, with nearly one-third starting to collect at age 62.
There are understandable reasons for claiming early.
“If a retiree is completely strapped for cash and doesn’t have any other potential sources of income, claiming early can be a financial lifeline for them,” said Catherine Collinson, CEO and president of the Transamerica Institute.
But early claiming also comes with lasting tradeoffs.
“You will get a reduced monthly benefit that you’ll essentially have to live with,” Collinson said. “Social Security is one of the few forms of guaranteed income in our society that comes with a cost-of-living adjustment, and so not only are you getting a lower monthly benefit, but that adjustment’s going to be a lower amount because it’s a percentage of the monthly benefit.”
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Only a Small Percentage Wait Until Age 70 for Maximum Benefits
For those who can afford to delay, waiting until age 70 can significantly increase monthly payments thanks to delayed retirement credits. Still, only 5% of retirees held out until age 70 or later, according to the Transamerica report.
“For retirees, getting a larger monthly benefit can be especially helpful,” Collinson said. “Retirees may reach a certain point where it would be difficult or impossible to jump back into the workforce, so anything that they can do to strengthen and future-proof their retirement income can be really helpful.”
While waiting until 70 doesn’t suit everyone, Collinson emphasized that the long-term advantages are often underestimated.
“Some may say, ‘Well, if you wait to age 70 and then die young, you may not get as many monthly benefits as if you had started earlier.’ But to counter that logic, if that actually comes to fruition and you pass on, you’re not going to need that money,” Collinson said.
How To Choose the Best Age To Start Your Social Security Benefits
Your Social Security claiming strategy should fit into a broader retirement plan. Collinson recommended working with a financial advisor or your 401(k) provider to understand how timing your benefits affects your long-term financial picture.
“The decisions you make could mean the difference between outliving your savings or living comfortably,” she said.
A solid plan should account for all potential income sources, including 401(k) plans, pensions, IRAs, home equity, other investments and Social Security. Factors like health, longevity expectations and employment stability also play a significant role.
“There are lots of different [variables], and by the time we reach retirement age, every situation is truly unique and truly personal,” Collinson said. “The rule of thumb is there is no rule of thumb. It’s worth understanding your financial situation and finding ways to optimize your decision-making.”
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This article originally appeared on GOBankingRates.com: This Is the Age Most Current Retirees Started Collecting Social Security