Workers accumulate Social Security “credits” by paying taxes on their earnings. Most people need 40 credits, which typically requires about 10 years of work, to be eligible for retirement benefits. The monthly benefit amount depends on your highest 35 earning years—if you worked fewer years, zeroes are included in your average, which would lower your average and final benefit amount.
Since the amount of benefits you receive is entirely dependent on the payroll taxes you pay, working for longer and in a higher-paying job or position will mean that you will collect more benefits when the time comes.
The estimated average monthly Social Security retirement scheme was $1,907 as of January 2024, according to the SSA, but that varies from person to person depending on a multitude of factors, like when they started claiming.
For each month you claim before your FRA, your benefit drops by about 5/9 of 1% for the first 36 months and 5/12 of 1% for any additional months. So, if your FRA is 67 and you claim at 62, you’d get about 30% less.
Per the IRS, “For example, if the number of reduction months is 60 (the maximum number for retirement at 62 when normal retirement age is 67), then the benefit is reduced by 30 percent.
This maximum reduction is calculated as 36 months times 5/9 of 1 percent plus 24 months times 5/12 of 1 percent.”
Conversely, if you wait beyond your FRA to start benefits, they increase due to “delayed retirement credits” (DRCs). For each month you delay, your benefit rises by a specific percentage, capping at age 70.
For those born in 1943 or later, this increase is 8% annually. Waiting until 70 means receiving the highest possible benefit, but waiting past 70 does not add any extra money.
The perfect age to collect benefits does not exist. It depends entirely on personal circumstances, and while yes doing the math is important, weighting your life circumstances is even more important.
Working while ill or when you do not need to may make your quality of life worse in the long run, but if you enjoy your career, taking a step back without fully leaving the workforce may be enough for you to keep working for longer and get the maximum benefit available.
