Social Security was established in 1935 in the depths of the Great Depression to provide Old-Age, Survivors, and Disability Insurance (OASDI). What started as a program covering only about 50,000 Americans has turned into one now covering over 50 million beneficiaries. By dollars paid out, the US Social Security program is the largest government program in the world and still the single largest federal expenditure—though that is likely to be surpassed by Medicare before too long. It is estimated that Social Security prevents about 40% of Americans age 65 or older from falling below the poverty line. The largest component of OASDI is the payment of retirement benefits. The Social Security Administration keeps track of every participant’s career earnings, and the amount of monthly retirement benefits is ultimately based on one’s earnings record and the age when benefits begin. This initial age at which one starts to collect is an important decision for any recipient, though for many it is one made of necessity rather than choice. To the extent that one is able to delay the receipt of benefits—up until the maximum age of 70—it could be quite sensible and rewarding to do so.

An individual has three options for when to take benefits: full retirement age; earlier than full retirement (though no earlier than age 62—except for widows or widowers—which results in permanently lower benefits); and later than full retirement (up to age 70—which results in permanently higher benefits). Prior to 1984 full retirement age was fixed at 65; but since 1984 when major reforms were made to the system, this age has been based on birth year. Currently, full retirement age is 65 and 10 months, and is scheduled to slowly climb in coming years up to age 67. According to the Social Security Administration, almost 75% of all recent recipients started taking benefits before their full retirement age, and approximately half of all recent eligible retirees started taking income at the earliest age possible, thus accepting the lowest benefit available. However, unless it is financially necessary, it may pay to wait. Of course, life expectancy assumptions are a key consideration in making the decision about whether or not to delay taking benefits. In order to receive greater lifetime benefits, an individual who starts collecting at full retirement age must generally live past age 75; waiting until 70 to collect means living into early 80s. Other factors such as personal health, family history, and lifestyle, should also be considered.

Accepting earlier benefits can permanently reduce ongoing annual income amount by up to 30% of what it could have been by waiting until full retirement; while waiting past full retirement to start collecting could permanently increase one’s annual income by up to almost 10%. Optimizing Social Security benefits for married couples is more complicated and requires additional individual analysis—but usually the same general rule about waiting applies. With steadily increasing life expectancies, though, the decision to delay Social Security collection is becoming increasingly important. However, some critics, such as economist Milton Friedman, have argued that Social Security favors the wealthy in this regard because it redistributes wealth from the poor to the wealthy due to the limits on the amount of taxable income that determine contributions. Taxation on benefits, which began in 1984, has been one response to this criticism. In addition, wealthier individuals typically live longer—and thus may expect to receive larger lifetime benefits. An individual who dies before age 62 receives no retirement benefits at all despite paying years of Social Security tax; an individual who lives to age 100 or longer is guaranteed total payments that exceed contributions. Life expectancy for the entire population has increased by over 5 years for men and 6 years for women since regular payments began in 1940,  yet the retirement age has only increased by 2 years. This dichotomy is the primary strain on the system, but it is also the main reason to consider delaying benefits—to address the increasing likelihood of living longer.