Millions of seniors today count on Social Security for much of their retirement income. And while benefit cuts aren't happening anytime soon, they might come into play in a little more than a decade from now.
The problem is that Social Security's primary source of revenue is payroll taxes. But a shrinking workforce fueled by the mass retirement of baby boomers is putting the program in a position where it won't have enough revenue in the coming years to keep up with scheduled benefits.
Now Social Security does have trust funds it can tap to make up for that shortfall -- but only for a limited period of time. Once those trust funds run dry, benefit cuts may be inevitable. And the most recent estimate by the program's Trustees expects Social Security's trust funds to be out of money by 2034.
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This means that current Social Security beneficiaries might see their paychecks shrink to a large degree in a little over 10 years. That's not a good thing, since for many older Americans, those benefits are their sole source of retirement income. But if you haven't claimed Social Security yet, there's one important move you can make to help compensate for potential benefit cuts.
Delay your filing for a higher benefit
You're entitled to your full monthly Social Security benefit based on your personal earnings history once you reach full retirement age, or FRA. That age is 67 if you were born in 1960 or later.
But you don't have to sign up for Social Security as soon as your FRA arrives. And if you're willing to wait, the financial upside could be huge.
Social Security rewards delayed filings with an 8% boost to benefits per year of waiting. Now this incentive does run out at the age of 70. But if you're looking at an FRA of 67 and you file for Social Security at 70 instead, you could raise your monthly benefit by 24%.
Meanwhile, the Social Security Trustees are talking about having to slash benefits by about 20% in light of the program's impending financial shortfall. So let's say you're entitled to a $2,000 monthly benefit at age 67, only it's reduced to $1,600 after benefit cuts are implemented. If you were to delay your filing by three years, you'd raise your monthly benefit from $2,000 to $2,480. Even if you only end up getting 80% of that, you're still left with $1,984 -- roughly the full monthly benefit you were looking at in the first place.
Now to be clear, Social Security cuts aren't a given. And there's apt to be a wave of backlash if lawmakers actually allow them to happen.
But still, it's important to prepare for the possibility of benefit cuts and plan around it. And you may want to plan on delaying your Social Security filing as long as possible so that you're able to largely make that money back -- and lower your chances of struggling financially during your senior years.
