Choosing when to begin claiming Social Security is a big decision, as it will impact your monthly income for the rest of your retirement.
The right age to file will depend mostly on personal factors, such as the amount you have saved and when you want to retire. But sometimes your decision will be affected by outside influences as well, such as the state of the stock market and future changes to the Social Security program.
The stock market has had a rough few months, and some experts predict that a recession could be looming. Also, Social Security cuts could be on the horizon, which may affect your retirement. Is now really a good time to start taking benefits, then? Here's what you need to know.
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How the stock market can affect your retirement
It can be challenging to retire during periods of stock market volatility. When stock prices are down, your retirement fund may drop in value. If you make withdrawals during that time, you could end up selling your investments for less than you paid for them, losing money.
While you don't necessarily have to start claiming Social Security as soon as you retire, the two often go hand in hand. If you choose to retire and file for benefits now, just know that your savings might not go quite as far, and you could end up relying more heavily on Social Security.
This isn't to say you shouldn't retire right now. But if your savings are falling short, it may be a good idea to limit the amount you're withdrawing from your retirement fund until the market recovers.
Similarly, it can sometimes be smart to delay claiming benefits if the market is shaky. Waiting to file will result in larger checks each month, which means you may not have to withdraw as much from your retirement fund -- and that can help your savings go further.
Preparing for potential benefit cuts
Another factor to consider is the fact that Social Security benefits could be reduced in the relatively near future.
According to the Social Security Administration Board of Trustees' latest report, the program's trust funds are expected to run dry by 2034. When that happens, there will only be enough cash to cover around 77% of scheduled benefits. That means unless lawmakers come up with a solution soon, benefits could be cut by up to 23% by 2034.
Nobody knows for certain whether these cuts will actually happen. But if you're expecting to depend heavily on Social Security in retirement, it may be wise to have a plan ready just in case.
One option is to simply save more in your retirement fund so you won't be as dependent on Social Security. If benefits are cut, then, it won't drastically affect your retirement income.
Another strategy is to delay filing for benefits. Again, delaying by even a year or two will boost your payments, sometimes by hundreds of dollars per month. That money can go a long way if Social Security faces cuts, especially if you're short on savings.
Is now the right time to begin claiming benefits?
There's nothing wrong with filing for Social Security right now, but it is important to be aware of how stock market volatility and potential benefit cuts could affect your retirement.
If you don't have much in savings and expect to rely on your benefits for the majority of your income, it could be worthwhile to work a few more years to build up a healthier nest egg. At the same time, that can also give you the opportunity to delay Social Security, resulting in larger checks each month.
On the other hand, if you have a robust retirement fund and don't expect Social Security to make up a sizable portion of your income, it may not necessarily matter when you claim. While it's still important to be mindful of your withdrawals during a market slump, if you have plenty of savings, a market downturn won't have as much of an impact on your overall retirement.
It can be tough to decide when to begin claiming Social Security, especially when the market is volatile. But by considering your savings and how much you expect to depend on your benefits, you can make the best decision for your unique situation.
