More than 50 years ago, preschoolers at Stanford’s Bing Nursery School were given a choice. They could either eat a marshmallow right away or wait 20 minutes and get two marshmallows. The children were then followed for decades. Those who waited outperformed in several ways, including higher SAT scores and increased self-esteem.
American adults nearing retirement are faced with their own version of the marshmallow test. They can claim benefits early at the age of 62. They can wait until their full retirement age. Or they can wait until age 70. The longer the wait, the higher the benefits.
It may seem like a good idea to push back as long as possible. But do you really have to wait until your 70s to claim Social Security benefits? This is what the statistics show.
Image source: Getty Images.
The advantage of waiting
Let’s assume that you have steadily earned the maximum Social Security benefits level throughout your career and have chosen to claim your benefits at age 62 in January 2022. Your monthly retirement benefit would be $2,364, according to the Social Security Administration (SSA).
Now let’s assume that you wait until the age of 67 to claim benefits. Your monthly check would rise to $3,568. However, if you choose to delay claiming Social Security benefits until age 70, you will receive a whopping $4,194 per month.
This isn’t such a great deal when the preschoolers get twice as many marshmallows by waiting 20 minutes. However, there is clearly a financial benefit to deferring when you claim Social Security retirement benefits.
Your monthly check will be nearly 51% higher by waiting to claim Social Security benefits until age 67 compared to if you do so at age 62. If you wait until age 70, your monthly check will be more than 17.5% higher compared to claiming benefits at age 67.
Why statistics work against procrastination?
So is delaying until age 70 to claim Social Security benefits a smart move? Not based on statistics. It is true that you will receive a higher monthly check if you wait. However, it is important to look at what your cumulative benefits will be.
Data source: Social Security Administration. Calculations and graph by author.
The above chart shows the cumulative benefits by age for claiming Social Security at age 62, 67, and 70. Note that the calculations use the aforementioned maximum social benefit amounts.
At age 76, the cumulative benefits for applying for an application at age 67 will be higher than those for applying for an application at age 62. At age 87, the cumulative benefits for applying for an application at age 72 are higher than those applying for an application at age 67.
Now for perhaps the most important stats. The average lifespan of men in the US is 75 years. For women, that is 81 years. Statistically, most Americans are not it’s better to wait until age 70 to claim Social Security benefits, as they won’t live long enough for it to pay off.
We also did not take into account the time value of money. Even if you didn’t need Social Security benefits at age 67, you can claim them and invest the money in a low-risk alternative, such as government bonds. Doing so will help clarify how long it would take to further justify delaying claiming benefits.
You are not a statistic
Does this analysis absolutely mean that you shouldn’t wait to claim Social Security benefits? No. You are not a statistic.
You can enjoy a much longer life than the average life expectancy. You may be able to reap many more total Social Security benefits by waiting to claim benefits than if you were claiming benefits at a younger age.
Whatever your decision, go ahead and eat some marshmallows if you want. There is no psychologist watching.