Congress recently passed a law that is designed to help people consider how to get the highest possible Social Security retirement benefit.
As you know, everyone gets to choose when they start receiving their payment. It can be any time between age 62 and age 70. There is, of course, a tradeoff. The longer you wait, the higher your benefit will be.
For instance, anyone born in 1960 or later is entitled to 100% of their benefit at age 67. If they choose to start at age 62, their benefit will be 70%, not 100%. That’s the tradeoff for starting at 62: a permanent 30% reduction in benefits.
And there’s a bonus if you wait until age 70 to start. Someone born in 1960 or later who starts at age 70 will be paid a benefit that is 124% of what they would receive at age 67.
All told, the difference between starting at 62 and 70 is a payment that can be 76% higher. That’s why I have always told you that if you are in good health in your 60s, and you have the financial flexibility to wait to claim, it can be so very smart to wait as long as possible to start receiving your benefit.
For married couples, this is especially true. When the highest earner delays as long as possible, it will ensure the surviving spouse gets the highest possible benefit. (Remember, when a spouse dies, the survivor is only allowed to get one benefit, not both. The survivor chooses whether to keep his/her own, or receive the deceased’s benefit.)
Okay, so what did Congress just vote to change? For years, the official statement from the Social Security Administration that shows you your future benefits has called these three pivotal claiming points the following:
Age 62: early eligibility age
Age 67: full retirement age/normal retirement age for someone born in 1960 or later.
Age 70: latest age to receive delayed retirement credits
The Claiming Age Clarity Act that Congress just passed will require the Social Security Administration to change the wording it uses. When the new law eventually goes into effect (it likely will be effective sometime in 2027), these are the new terms you will see if you were born in 1960 or later:
Age 62: Minimum monthly benefit age.
Age 67: Standard monthly benefit age.
Age 70: Maximum monthly benefit age.
Minimum. Standard. Maximum. That’s all that changes. Benefits don’t change, but the language to describe those three pivotal ages does. And that’s a bigger deal than you may think.
Studies show that something seemingly as subtle as a word change can impact our choices. It’s just human nature. We are influenced by how things are framed for us. And this new wording is designed to nudge you to be more aware of the payment trade-offs you make when you claim at a younger, rather than an older, age.
I want to stress: no changes to benefits are part of this new legislation. All that has changed is the wording on statements to help you make the smartest informed decision.
And I continue to recommend that the longer you can wait, the better, assuming you do not have an illness that you think will dramatically shorten your life. That is still true today. Yes, we need Congress to address the 20% or so shortfall Social Security will have in six or seven years. But as I explained a few months ago, the math of claiming earlier out of fears of any potential benefit cuts just doesn’t add up. Settling for the minimum is not typically the best financial move if you are in good health.
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