Though you’re not eligible to collect your full monthly Social Security benefit until you reach full retirement age, you don’t have to wait that long to start taking benefits. In fact, you can claim Social Security as early as age 62, which happens to be the most popular age to file.
The problem is that filing early means automatically reducing your benefits, quite possibly for life. How much of a hit are we talking about? If you were born in 1960 or later and therefore have a full retirement age of 67, filing at 62 means slashing your benefits by roughly 30%. This means that if you’re looking at a full monthly benefit of $1,400, which is roughly what the average recipient gets today, you’ll cut that payment down to just $980 by filing five years early.
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There are plenty of valid reasons to take benefits as soon as possible. If you lose your job and don’t have the savings to pay your bills, you’re better off filing for Social Security than racking up costly credit card debt to stay afloat. Similarly, if you have health issues and don’t think you’ll live very long, you’ll generally get the highest lifetime benefit by filing as soon as you can.
But if there’s one bad reason to claim Social Security early, it’s jumping the gun for fear that the program is going broke. Unfortunately, in a Nationwide Retirement Institute study, about one-third of older workers who are planning to take benefits ahead of schedule say they’re doing so because they don’t believe Social Security will be around at their full retirement age. And that line of thinking could really hurt them in the long run.
Social Security is not going bankrupt
Let’s get this out of the way right now: Social Security is not going bankrupt, nor can it ever be bankrupt in theory. The reason? The program is funded by payroll taxes. For every dollar you make this year up to the $128,400 threshold, a portion of that income gets taken in by Social Security to help keep the program alive. Therefore, as long as we have a workforce, the program will keep getting money. But whether it gets enough money to sustain benefits at their current level is a different story.
In the near future, Social Security will start paying out more money in benefits than it takes in, due heavily to the mass exit of baby boomers from the workforce. Once that happens, the program will need to rely on its trust fund to make up the difference. That fund, however, is set to be depleted as early as 2034, at which point benefits might be cut by up to 23% if Congress doesn’t intervene with a fix.
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But let’s think about that: Millions of retirees depend on Social Security, and to allow such a drastic benefit reduction would be to unleash a massive poverty crisis across the nation. That’s not something our government wants to let happen. So while there isn’t currently a solution in place for this problem, chances are, we’ll see one over time. Remember, Social Security has enough anticipated revenue and fallback income to keep things going for another 16 years. That’s a nice amount of time for lawmakers to put their heads together and come up with something.
The point here is that if you don’t need your benefits immediately to pay the bills, and don’t have reason to believe you’ll pass away sooner than most seniors, you shouldn’t rush to file for Social Security because you think the program is going away. This especially holds true if you’re entering retirement with little savings and need those benefits to cover your bills on a long-term basis.
Of course, an even better bet is to save enough in your IRA or 401(k) so you don’t have to worry about what happens to Social Security one way or another. But in the absence of that, don’t create a scenario where you lose out on crucial benefits for life because you’re worried about Social Security’s future. Instead, worry about your own future, and take steps to get as much in benefits as you possibly can.
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