Everyone's path to retirement looks a little different, but there are several milestones that most workers experience. You turn 50 and you become eligible to make catch-up contributions to your retirement accounts. When you reach 59 1/2, you can make penalty-free retirement withdrawals. And when you turn 62, you become eligible for Social Security.
At least that's how things have been for a long time. But the government might wind up moving the goalposts on that last one within the next few years. Here's why.
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Social Security is in serious trouble
The baby boomers retiring has posed an enormous challenge for Social Security. It's led to more beneficiaries than ever, and since younger generations have been smaller, there are fewer workers paying into the program than there used to be. So far, the government's been able to continue paying all scheduled benefits only by tapping the program's trust funds. But they're running out.
The latest estimates suggest that Social Security will only be able to continue paying everyone's benefits until 2033. After that, it'll only have the cash to pay out about 80% of what it owes. That's obviously a problem, especially for those who depend on Social Security as their primary or sole source of retirement income.
There are two main strategies the government could use to resolve this. First, it could look to increase funding for the program by raising the Social Security payroll tax and/or the benefit taxes it charges some seniors. But that would mean paychecks and Social Security checks may not go as far as they do right now.
The other option is to find some way to decrease the amount the government has to pay out in benefits annually. Politicians have thrown a lot of ideas around, some of which affect current and new beneficiaries while others only affect those who haven't signed up yet.
One possibility is raising the age at which you become eligible for Social Security. This has been 62 for decades, but it might not stay that way forever. Several proposals for eliminating the shortfall mention raising this ceiling as well as the full retirement age (FRA) -- the age at which you become eligible for your full benefit per check.
If this were to happen, workers would have to wait to sign up for Social Security, and they'd likely wind up with a smaller lifetime benefit than they would receive under the current system. It would force workers to either remain in the workforce for longer or save even more for retirement on their own in order to make up for these lost Social Security benefits.
Nothing's been decided yet, and it's possible this never comes to pass. But it's something that should be on your radar as you plan for your retirement.
Claiming at 62 might not be your best move anyway
Even if you are able to claim Social Security at 62, it might not be the right decision for you. Claiming at this age is technically considered claiming early. If you want the full benefit you've earned based on your work history, you have to wait until your FRA -- currently between 66 and 67, depending on your birth year -- to sign up.
When you receive benefits before your FRA, each check you get is smaller. Those with an FRA of 66 only get 75% of their full benefit per check when they sign up at 62, while those with an FRA of 67 get 70% of their full benefit per check at 62.
Every month you delay Social Security grows your checks a little until you reach your largest possible benefit at 70. That's 124% of your full benefit per check if your FRA is 67 or 132% if your FRA is 66. But that doesn't mean delaying benefits is always your best option.
Life expectancy plays a huge factor in the ideal age to sign up for Social Security, and so does your financial situation. Those who don't think they'll live beyond their 70s and those who can't afford to pay their bills without Social Security may be better off signing up earlier. But if neither of those things applies to you, you could get a larger lifetime benefit by delaying Social Security.
You can estimate how much you'll get from the program under its current rules by creating a my Social Security account. There's a calculator here that can help you estimate your monthly benefit at any claiming age. Take one of these figures and multiply it by the number of months you expect to receive benefits to get your estimated lifetime benefit for that claiming age. For example, a $2,200 benefit claimed for 20 years gives you a lifetime benefit of $528,000.
Whenever possible, aim to apply at the age you believe will give you the largest lifetime benefit. But be prepared to adapt as necessary. If the government does make changes to Social Security, you might have to rethink your claiming age, especially if you planned to sign up right away at 62.
