The way Americans save for retirement has changed a lot since 1940, when the government sent out the first monthly Social Security check. One of the most important changes is that fewer employers offer pensions. Now, most Americans save for retirement on their own through 401(k)s, IRAs, and other personal investment accounts.

As things have changed, Social Security has become an even more important way for retirees to make money. A recent Gallup poll found that nearly 60% of retirees depend on Social Security as a main source of income. This means that millions of people need to make sure they are getting the most out of the program.

Because more and more people are relying on Social Security, it’s more important than ever to understand how it works, especially since it hasn’t been changed much since the 1980s.

Luckily, the system’s old structure has created unintended chances for beneficiaries to get the most out of it. If retirees know about these imbalances, they can set themselves up to get more from Social Security than they might have thought possible.

Social Security quirks beneficiaries should know about

At first, Social Security was meant to give people about the same amount of money in lifetime benefits, no matter when they started getting benefits. This idea was meant to make sure that everyone was treated equally, whether they claimed early or waited until a later age.

But in 1983, changes were made to reflect what people thought the life expectancy would be at that time. This included changes to how monthly benefits went up for people who didn’t start collecting Social Security until they were older than 62.

But figuring out how long someone will live isn’t easy, and the government’s estimates weren’t always right. The CDC’s most recent data on life expectancy shows that retirees can get the most out of their benefits by filing at a certain age. This was not fully taken into account when the changes were made in 1983.

A person’s primary insurance amount (PIA), which is based on their past earnings, is used to figure out how much money they will get from Social Security. It’s also very important how old the person is when they start getting benefits compared to their full retirement age (FRA). The FRA is set at 66 for people born between 1943 and 1954.

The FRA slowly goes up for people born after 1954 and reaches 67 for people born in 1960 or later. The changes made in 1983 also changed the benefits for people who claim them before or after they reached their full retirement age.

For instance, if someone decides to claim Social Security at age 62, they will permanently get less each month. If you wait to file until you are 70 years old, on the other hand, you will get the biggest monthly payment. People who wait until age 70, on the other hand, can’t get benefits for a few years and will have to live long enough to “catch up” to people who claimed earlier.

People can better decide what to do by looking at “breakeven” ages. These are the ages at which someone who put off filing for Social Security starts getting more in total benefits than if they had filed earlier.

Some useful information for this calculation comes from the CDC. The CDC’s life expectancy tables, which were updated in November 2023 with data from 2022, give retirees an idea of how long they can expect to live.

For example, a retiree today who is 62 years old can expect to get more from Social Security over the course of their lifetime if they wait to claim it until well after their full retirement age. By age 65, the case for waiting is even stronger, but as someone gets close to 70, it might make sense to think about starting to get benefits a little earlier than that age.

New data shows that the average 70-year-old can expect to live for about 85 years and four months. Based on these numbers, most people would get the most out of their lifetime benefits by filing their claim right before they turn 70.

Keep in mind that these estimates of life expectancy come from data from 2022, which still includes the effects of the COVID-19 pandemic. According to data from 2019, the average life expectancy for a 70-year-old was almost 86 years. Life expectancy has been going up over time.

The trend of going up was one reason why Social Security was changed in 1983. As long as life expectancies keep going up, putting off getting Social Security until age 70 is probably the best thing to do for most people, unless they are worried about living a shorter than average life.

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