If you’ve been planning to wait until age 70 to claim your Social Security retirement benefits, but are worried your full benefit won’t be there when you get there, you’re not alone.
There’s been no shortage of hand-wringing about the health of the federally run retirement program, and you’ve surely heard projections that benefits might be cut by 20% or more in 2032. Does that mean you should take benefits earlier than planned to lock in your payout?
“For those aiming to wait until age 70 to claim, don’t waffle,” said Nancy Altman, president of Social Security Works, a nonprofit advocacy group. “It’s the wrong way to look at” when to claim, she said. “You’ll get a permanently reduced benefit. You may need those benefits later in life.
People should decide when to claim their benefits based on their individual circumstances,” she said.
The Congressional Budget Office has projected future cuts to Social Security retirement benefits that may panic some people. Yet, the labor market rebound has been stronger than CBO anticipated, CBO director Phillip L. Swagel said in December.
Benefit cuts are not inevitable. With a new administration and Congress in place, Social Security legislation could find its way to lawmakers in the next year or two.
“The idea that we can’t afford” to fix Social Security to avoid cuts “isn’t accurate,” said Altman, also the author of several books including The Truth About Social Security.
Despite polarization around many issues including a stimulus bill during the pandemic, Altman said Americans are not polarized on Social Security and Congress can pass legislation that would prevent benefit cuts in the future.
“You have to distinguish hard facts from speculation,” said policy analyst and economist Henry J. Aaron, a senior fellow at the Brookings Institution. “Social Security has plenty of money to pay benefits for the next 10 to 15 years. It has big reserves.”
Yet, changes have to be made to close the financing gap to avoid future benefit cuts. “Nobody wants cuts,” Altman said. Seniors are “always voters,” and would vote lawmakers out of office if they cut benefits.
Social Security retirement benefits are financed through an annual payroll tax of 6.2% paid by employees and 6.2% paid by employers, up to incomes of $142,800 this year, a threshold that increases each year. Self-employed people pay 12.4%.
Originally, the payroll tax covered the cost of paying most of Social Security retirement benefits. Other much smaller sources of revenue come from interest earnings on the Social Security Trust Fund and tax paid by those who receive Social Security benefits
In short, there are two basic ways to protect the future of Social Security retirement benefits. One is to raise revenue through payroll taxes and the other is to cut benefits, Aaron said. Most legislation introduced in the last Congress, but not passed, proposed raising revenues.
Under the current system, the earliest you can claim is age 62, but you will receive reduced benefits for the rest of your life. Claiming at your full retirement age gives you 25% to 30% more, and waiting until 70 gives you delayed retirement credits of 8% per year between ages 66 and 70, if you were born in 1943 or later.
For example, say your payout at 66, your full retirement age, would be $1,000 a month. If you claimed early at age 62, you’d receive just $750 a month. If you wait until 70, you get $1,320 per month.
When deciding when to claim, consider:
• How long are you likely to live? No one knows for sure but there are ways to estimate your longevity. Men who are 65 today on average are expected to live to 84, and women to 86.6, according to the Social Security Administration’s actuarial table. How long did your parents live? What is your current health like? Do you have any chronic medical conditions that could shorten your life?
• What other financial resources do you have? If you have other assets you can use, it makes sense to wait at least until your full retirement age (66 or 67 for those born after 1943). “There’s no better way of investing than to defer your Social Security because the rate of return will outweigh what you’ll be able to reap investing on your own,” Aaron said.
• Are you still working? If you are between ages 62 and 70, and still have a regular paycheck, it’s easier to wait to claim. Most likely, you don’t need the money.
“There’s not one size fits all,” said Jason J. Fichtner, a senior lecturer in international economics at the Johns Hopkins University School of Advanced International Studies and former acting Deputy Commissioner of Social Security, chief economist, and associate commissioner for retirement policy at the Social Security Administration. “Wait as long as possible up to age 70 unless you need the money today, take it.” He also is a fellow with the Bipartisan Policy Center.
Heather Schreiber, a retirement income certified professional, cautions letting fear control your decision to claim at the earliest possible time (age 62) rather than considering your entire financial situation.
In the midst of the pandemic and with the rollout of the vaccines under way, Social Security is unlikely to be a priority this year. Yet, after the midterm Congressional elections or sometime during the Biden administration experts say Congress could take up the issue. “Within four years it could happen,” Altman said. “There is a fix for Social Security. The cuts would not be until 2034 or 2031 based on the impact of COVID-19.” And the cuts are based on projections. “Projections aren’t crystal balls,” she said.
Aaron predicted: “If you’re near retirement — 55-plus — you can count on receiving Social Security in its present form, not detectably different than the current one.”
How likely would a cut in benefits be, especially for those already receiving Social Security retirement benefits?
“It may never happen,” Fichtner said. “I have a hard time seeing Congress cutting benefits for everyone.” Until legislation is passed to close financing gaps, Congress would borrow money from the general reserve to pay benefits, he said.
Harriet Edleson is author of the forthcoming book, “12 Ways to Retire on Less: Planning an Affordable Future” (Rowman & Littlefield, May 2021). A former staff writer/editor/producer for AARP, she writes for The Washington Post Real Estate section.