By now, you may have heard the rumors that Social Security is about to go bankrupt, and that benefits will be off the table within a few years. The good news is that that's far from true.
Social Security is facing some financial challenges. But the program also is not about to disappear.
That said, once Social Security's trust funds run out of money, which could happen in just a little more than a decade from now, the program may have to universally slash benefits. And those cuts could be pretty notable.
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Retirees may be looking at benefit cuts of upward of 20%. And for those who get most or all of their income from Social Security, any reduction in benefits could be downright catastrophic.
If you're worried about Social Security cuts impacting your retirement, one of the best things you can do is push yourself to build up a solid nest egg. The more savings you enter retirement with, the more protected you'll be if your Social Security income is reduced.
But there's another key move you can make to compensate for Social Security cuts. And it's one that could also give you more peace of mind throughout your retirement.
Delay your filing for a higher payday
You're entitled to your full monthly Social Security benefit based on your wage history once you reach full retirement age (FRA). That age is either 66, 67, or somewhere in between, depending on when you were born.
But you don't have to sign up for Social Security at your precise FRA. You can accrue delayed retirement credits for postponing your filing up until the age of 70. And those credits are worth 8% a year. So if your FRA is 67 and you hold off on claiming Social Security until age 70, you'll end up boosting your benefits by 24%.
Now, boosting your benefits is something you may want to do regardless of Social Security cuts. But if those cuts become official, increasing your monthly benefit is a great way to compensate.
Let's say you're entitled to a $2,000 monthly Social Security benefit at an FRA of 67, only the program then slashes benefits by 20%. That means you're now looking at only $1,600 a month. But if you delay your filing until age 70, you can grow that $2,000 benefit into $2,480. And even if you're only entitled to 80% of that $2,480, you're still left with $1,984 -- in other words, roughly the same benefit you were initially expecting.
Benefit cuts aren't a given
Lawmakers have a lot to lose by allowing Social Security cuts to happen. And so there's a good chance they'll come together to find a way to prevent that scenario.
But even if Social Security cuts do end up becoming necessary, it doesn't mean you need to resign yourself to a much lower monthly benefit for life. If you delay your filing, you can squeeze out a higher benefit and potentially avoid a major financial hit.
It could also be a great idea to look at delaying your filing, even if Social Security cuts are taken off the table completely. Having a higher incoming benefit every month could give you peace of mind, given that your savings have the potential to run out on you down the line. So unless you have a compelling reason to claim Social Security sooner, you may want to tell yourself that you'll sign up at age 70 -- regardless of what benefit cuts look like.
