Benefit Calculation
Social Security benefits vary based on claiming age relative to Full Retirement Age (FRA). Benefits are reduced for early claiming and increased for delayed claiming:
| Claiming Age | Monthly Benefit | % of FRA |
|---|---|---|
| 62 | $1,400 | 70% |
| 65 | $1,733 | 86.7% |
| 67 (FRA) | $2,000 | 100% |
| 70 | $2,480 | 124% |
Example based on $2,000 FRA benefit. Actual benefits depend on earnings history.
Guaranteed Return: Delaying from 62 to 70 increases monthly benefit by 77%. This represents an ~8% annual guaranteed return — difficult to match with market investments, and impossible to match with the same risk-free profile.
Two features make Social Security uniquely valuable that break-even analysis misses:
- Inflation-indexed: Benefits increase with CPI. No other "guaranteed" investment provides real return protection for life.
- Longevity insurance: You cannot outlive it. An annuity with equivalent features would cost $200-400k to purchase privately.
Break-Even Analysis
The break-even age is when cumulative benefits from delayed claiming exceed cumulative benefits from early claiming. But break-even framing is subtly misleading — it treats Social Security as a gamble on lifespan rather than insurance against living too long:
Claiming 62 vs 67:Break-even ~80 years oldClaiming 62 vs 70:Break-even ~82 years oldClaiming 67 vs 70:Break-even ~82 years old
Longevity Context: Life expectancy for a 65-year-old is approximately 85 (male) to 87 (female). Most retirees live past break-even age, meaning delayed claiming typically maximizes lifetime benefits.
Insurance vs. Investment Framing: You don't buy homeowner's insurance hoping your house burns down. Similarly, Social Security delay isn't about "winning" by living long — it's about protection if you do. The worst financial outcome isn't dying early (your heirs get your assets). It's living to 95 with depleted savings.
Factors Favoring Early Claiming (62-66)
- Health concerns: Reduced life expectancy shifts break-even unfavorably
- Liquidity needs: Insufficient assets to bridge gap without benefits
- Lower-earning spouse: Claim smaller benefit early while larger benefit grows
- Continued work with low earnings: Benefits not reduced if below earnings test threshold
Factors Favoring Delayed Claiming (67-70)
- Good health/family longevity: Higher probability of exceeding break-even
- Sufficient bridge assets: Can fund gap from portfolio without stress
- Higher earner in couple: Maximizes survivor benefit for spouse
- Tax optimization: Allows Roth conversions in lower-income years
Survivor Benefits: Surviving spouse receives the larger of the two benefits. Higher earner delaying maximizes this insurance value for the couple.
Spousal Coordination Strategies
For married couples, claiming decisions should be coordinated:
- Higher earner delays to 70: Maximizes survivor benefit and lifetime payout
- Lower earner claims early: Provides household income during delay period
- Both delay if assets permit: Maximizes total household lifetime benefits
- Age gap consideration: Larger gaps increase value of survivor benefit optimization