At this point, a lot of people are worried that Social Security is going to shrivel up and stop paying benefits. Thankfully, that's just not true.
Social Security is facing some financial challenges. But at this point, the worst-case scenario is looking like benefits cuts, not the program doing a complete disappearing act.
Still, benefit cuts aren't exactly the best news, especially if you're someone who's been struggling to save for retirement and expects to be heavily reliant on Social Security once your career comes to an end. But you should know that even if Social Security isn't forced to slash benefits universally, you might still end up with less money from the program for one big reason.
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When you're forced to claim benefits early
Social Security allows you to sign up for benefits as early as age 62, but you're not entitled to your complete monthly benefit based on your personal earnings history until full retirement age (FRA) arrives. That age is 67 if you were born in 1960 or later.
For many people, it's a good idea to wait until FRA to sign up for Social Security to avoid a lifelong reduction in benefits. However, you may not be able to wait that long.
You never know when a major crisis or a personal life event might force you to kick off retirement sooner than expected. Just look at what happened in 2020. Many older workers had to retire early because it wasn't safe for them to hold down a job during the pandemic.
Plus, there's always the risk that your personal health might deteriorate to the point where you can't hold down a job. Or you might end up needing to become a caregiver at a younger age than expected. You also never know when your company might shutter or your industry might experience its own recession.
All of these situations might force you into retirement before FRA, forcing you to claim Social Security early and shrink your benefits as a result.
That's why it's so important to do your best to build retirement savings. You might assume you'll get a certain amount of money from Social Security based on what your most recent earnings statements are telling you (and if you haven't checked yours out, you should by creating an account at SSA.gov).
But even if benefits aren't cut universally, you might end up with a smaller monthly benefit due to having to sign up early. And a nest egg -- even a modest one -- could help compensate.
The good news is that you don't have to part with loads of cash to build up a nice amount of savings. Socking away $200 a month in a retirement plan over 25 years could leave you with $175,000 if your invested savings deliver an average annual 8% return, which is a bit below the stock market's average.
You may have every intention of claiming Social Security at FRA -- or even beyond for a boosted benefit. But don't assume that option is one you'll be able to exercise. Plan accordingly by having some savings to fall back on in case things don't go your way.
