Please ensure Javascript is enabled for purposes of website accessibility

Don't Let This Common Social Security Fear Drive You to Claim Benefits at the Wrong Time

By Maurie Backman – Dec 28, 2021 at 12:02AM

Key Points

  • Many people worry that Social Security is running out of money.
  • The program is facing its share of financial troubles.
  • You can't let Social Security's fiscal woes lead you down a dangerous path.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's not a totally unfounded fear, but it shouldn't lead you astray.

Many people worry that once they retire, Social Security won't have the means of paying them the benefits they were hoping to get. That fear isn't exactly unfounded.

Earlier this year, the program's Trustees reported that Social Security's trust funds are slated to run dry by 2034. Once that happens, the program may be forced to implement benefit cuts across the board.

A lot of people, though, are blowing that news out of proportion. Are benefit cuts a bad thing for current and future retirees? Absolutely. But is Social Security looking at running out of money completely? Absolutely not.

A person standing over a laptop.

Image source: Getty Images.

Social Security's primary revenue source is the money it collects in payroll taxes. Since there are no plans to eliminate payroll taxes, there's no reason to think the program won't continuously get funded.

Still, inevitably, a lot of people will rush to file for Social Security as early as possible out of fear -- fear that if they don't get moving, they'll lose out on benefits altogether. And that's a move that could really backfire.

Can you afford to slash your own benefits?

The benefit cuts Social Security may have to implement once its trust funds run out of money are cuts you may not manage to avoid. But one type of benefit cut you can avoid is the one that comes as a result of claiming Social Security before full retirement age, or FRA.

FRA kicks in at 66, 67, or somewhere in between, depending on your year of birth. But you can sign up for Social Security beginning at age 62.

If you opt to go that route, you'll slash your benefits by 25% to 30%, depending on your FRA. And that reduction will generally remain in effect on a permanent basis.

If you're entering retirement with a significant amount of money in an IRA or 401(k) plan, then you may be able to manage a hit to your Social Security income. But if you expect those benefits to serve as your main income source for your senior years, then claiming them ahead of FRA is a move you might sorely regret.

It's also a move that won't help your situation if universal benefit cuts are implemented. Say that happens, and Social Security is only able to pay around 80% of scheduled benefits. That 20% cut is bad enough. But if you file for benefits early, you'll face an even more substantial cut -- one that could really result in a cash-strapped existence during retirement.

Don't give up on Social Security

There's no denying that Social Security benefit cuts are on the table. But that's not nearly the same thing as having benefits go away completely. The latter just isn't something that's expected to happen, so don't buy into the rumors that it is.

And don't let your fear of benefit cuts drive you to claim benefits at too early an age. If you do, you might sorely regret that decision for the rest of your retirement.

In fact, if benefit cuts do come to pass, you may want to compensate by delaying your Social Security filing beyond FRA. For each year you do, up until age 70, you can raise your benefits by 8% -- for life.

The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.