How Much Will Starting Social Security Early Really Cost You?

If you’ve done any research into claiming Social Security, you’ve probably heard at least one person say you should never sign up early because doing so could cost you a lot of money. But that advice isn’t true for all seniors.

Everyone’s situation is different and so is the right time to apply for benefits. Here’s a closer look at how your benefits are calculated and whether signing up early is the right choice for you.

How the government calculates your Social Security benefit

There are essentially two formulas the government uses to calculate your monthly benefit. The first is based on your average indexed monthly earnings (AIME) — your average monthly income over your 35 highest-earning years, adjusted for inflation — and your birth year. Here is the formula for those turning 62 in 2022:

Multiply the first $1,024 of your AIME by 90%.
Multiply any amount over $1,024 up to $6,172 by 32%.
Multiply any amount over $6,172 by 15%.
Total your results from steps 1 to 3 and round down to the nearest dollar.

In the above formula, $1,024 and $6,172 are known as the “bend points.” These change from year to year, so you’ll have different bend points depending on when you were born. But otherwise, the rest of the formula is the same for everyone.

This formula tells you your primary insurance amount (PIA). That’s how much you get if you claim benefits at your full retirement age (FRA). Your FRA is somewhere between 66 and 67, depending on your birth year. But a lot of people don’t claim then. If you start earlier or later, the Social Security Administration runs another calculation to determine how your benefit changes.

Starting early shrinks your monthly checks. If you sign up right away at 62, you only get 70% of your PIA if your FRA is 67 or 75% if your FRA is 66. Every month you wait to apply grows your checks slightly, and this continues past your FRA until you hit 70. That’s when you qualify for your maximum benefit. It’s 124% of your PIA per check if your FRA is 67 or 132% if your FRA is 66.

From this, it might seem like claiming early is always a bad idea. But this isn’t true. Below, we’ll look at the factors that influence whether it’s a good idea to sign up for Social Security under your FRA.

Starting Social Security early might not cost you anything…

Those with short life expectancies are usually better off claiming Social Security as soon as they become eligible. If you try to hold out for your maximum benefit at 70 but die before you get there, you’ll end up with nothing. And even if you make it to 70 and claim larger checks for a few months, you’ll still end up with less overall than you would have if you’d claimed smaller checks beginning at 62.

If you have a terminal illness or a personal or family health history that leads you to believe you won’t make it to your 80s, signing up early is usually the better choice.

It might also be wise if you need your checks to help cover your essential living expenses. Delaying Social Security isn’t worth it if doing so causes you to rack up credit card debt or fall behind on your rent or mortgage payment. This is just going to create more financial headaches later that larger Social Security checks aren’t going to be able to relieve.

…or it could cost you a lot

There is no magic life expectancy at which it becomes worth it to delay benefits. You have to do the math to figure this out. Think about how long you expect to live, and look up your monthly Social Security benefit at various starting ages by creating a my Social Security account. Then, multiply your monthly benefits by 12 to get your estimated annual benefits. And multiply these by the number of years you expect to claim to get your estimated lifetime benefits.

For example, if you qualify for a $1,500 benefit at your FRA of 67, you’d get about $1,050 per month if you claimed at 62 and $1,860 per month if you claimed at 70. That gives you annual benefits of $12,600 if you claim at 62, $18,000 if you claim at 67, or $22,320 if you claim at 70.

If you expect to live until 85, you’d either claim benefits for 15, 18, or 23 years, depending on which of the above ages you signed up at. So if you multiply each of these time periods by their respective annual benefit estimates from above, you get a lifetime benefit of $289,800 for signing up at 62, $324,000 for signing up at 67, or $334,800 for signing up at 70.

In this scenario, it would make a lot of sense to delay benefits if you could afford to do so. You’d get $45,000 more from the program over your lifetime compared to signing up early. But again, this isn’t true for everyone. If you want to know which starting age makes the most sense for you, repeat the steps above with your own numbers. You can also try out other starting ages besides the three listed above. Compare several scenarios until you find the one that’s best for you.

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