For the vast majority of retirees, Social Security is an indispensable source of income. Over more than two decades, pollster Gallup has surveyed retired workers to gauge their reliance on America's most successful retirement program. Every year, between 80% and 90% of respondents have claimed that their Social Security income is, in some capacity, necessary to cover their expenses.
Given how important Social Security income is to today's retirees, it's only logical that future beneficiaries would want to do everything possible to maximize what they'll receive. Yet one common misconception about the program could have up to 70% of retirees leaving as much as $12,000 in Social Security benefits on the table every year.
Image source: Getty Images.
A majority of workers are worried about Social Security's solvency
It's no secret that Social Security is facing its fair share of challenges. Since 1940 -- the year the first retired worker check was mailed out -- the Social Security Board of Trustees has released an annual report that examines the short-term (10-year) and long-term (75-year) financial outlook for the program. It's effectively an under-the-hood look at Social Security's balance sheet, which allows anyone to see how the program generates income and where each of those dollars ends up.
The 2023 Social Security Board of Trustees Report outlined an estimated $22.4 trillion funding obligation shortfall through 2097, and opined that the asset reserves of the Old-Age and Survivors Insurance Trust Fund (OASI) would be depleted by 2033, assuming no changes to the program. In other words, it signifies problems with the existing payout schedule given a number of ongoing demographic shifts.
The issue for a majority of current and future beneficiaries is that they've taken this to mean the Social Security program will run out of money.
In the "2022 Social Security Survey" published by the Nationwide Retirement Institute in July 2022, an aggregate of 70% of adults aged 26 and older either strongly agreed or somewhat agreed with the statement: "I worry about the Social Security program running out of funding in my lifetime."
If this 70% of adults is representative of what the majority of the next generation of retired workers believes, a lot of folks are at risk of being shortchanged come retirement.
Image source: Getty Images.
America's top retirement program is in no danger of bankruptcy or insolvency
To be crystal clear, Social Security is in need of an overhaul. In 2021, the program doled out more in benefits than it brought in for the first time in nearly four decades. The magnitude of this outflow is expected to increase over time, eventually resulting in the aforementioned depletion of the program's excess cash built up since inception (its asset reserves).
However, Social Security can remain perfectly solvent, even if OASI asset reserves are completely exhausted. The Trustees Report estimates that a 23% sweeping benefit cut would be needed for the OASI to sustain payouts through 2097 without the need for any further cuts. If the Disability Insurance Trust Fund were also included, sweeping cuts across both funds would be 20% instead of the estimated 23% for the OASI. While a reduction in Social Security checks isn't optimal, it's a lot better than receiving nothing at all.
Furthermore, Social Security's current structure prevents the program from going bankrupt or becoming insolvent.
The program generates income three ways:
- The 12.4% payroll tax on earned income up to $160,200 (as of 2023).
- Interest income earned on the program's asset reserves, which are required by law to be invested in special-issue government bonds.
- The taxation of Social Security benefits above certain income thresholds.
While income source No. 2 could disappear if the program's asset reserves are exhausted, Social Security would continue to collect revenue from taxing the wages and salaries of workers, as well as taxing benefits above preset income thresholds. The payroll tax accounts for about 90% of the revenue Social Security brings in every year.
In other words, as long as Americans keep working and paying their taxes, and Congress doesn't change the mechanism of how the program is funded, Social Security will never run out of funding in anyone's lifetime.
Don't make this $12,000 mistake
The mistake that 70% of current and future beneficiaries may be making is allowing a false premise -- the idea that Social Security is going to run out of funding -- to affect the age at which they claim their retired worker benefit.
Although there are more than a half-dozen factors that can affect what you'll receive and get to keep from Social Security, four core elements are used to determine your monthly payout: Work history, earnings history, full retirement age, and claiming age.
Of these four factors, your claiming age is what, arguably, can swing the pendulum more than any other factor and increase or decrease what you'll receive each month. Your full retirement age -- 67 for anyone born in 1960 or later -- is the age when you'll receive 100% of your retired worker benefit.
| Birth Year | Age 62 | Age 63 | Age 64 | Age 65 | Age 66 | Age 67 | Age 68 | Age 69 | Age 70 |
| 1943-1954 | 75% | 80% | 86.7% | 93.3% | 100% | 108% | 116% | 124% | 132% |
| 1955 | 74.2% | 79.2% | 85.6% | 92.2% | 98.9% | 106.7% | 114.7% | 122.7% | 130.7% |
| 1956 | 73.3% | 78.3% | 84.4% | 91.1% | 97.8% | 105.3% | 113.3% | 121.3% | 129.3% |
| 1957 | 72.5% | 77.5% | 83.3% | 90% | 96.7% | 104% | 112% | 120% | 128% |
| 1958 | 71.7% | 76.7% | 82.2% | 88.9% | 95.6% | 102.7% | 110.7% | 118.7% | 126.7% |
| 1959 | 70.8% | 75.8% | 81.1% | 87.8% | 94.4% | 101.3% | 109.3% | 117.3% | 125.3% |
| 1960 or later | 70% | 75% | 80% | 86.7% | 93.3% | 100% | 108% | 116% | 124% |
Data source: Social Security Administration.
As you can see in the table above, retired workers are incented to wait to claim their Social Security check. Every year a worker waits to take their payout, beginning at age 62 and continuing until age 70, their benefit can grow by as much as 8%. For someone born in 1960 or later, claiming as early as possible can lead to a permanent reduction of 30%, compared to what they'd have received each month at full retirement age. Meanwhile, waiting until age 70 can boost their monthly check by up to 24% above their full retirement age payout.
In May 2023, the average retired worker was bringing home a monthly benefit check totaling $1,836.06. If we, hypothetically, assume this is the baseline payout, an age 62 claim would reduce this benefit to $1,285 per month. Comparatively, an age 70 claim would increase this benefit to $2,277 per month. We're talking about a nearly $1,000 monthly difference, or about $12,000 each year in current-day dollars, that the average beneficiary may be leaving on the table because they were coerced into an early claim on the false premise of Social Security running out of funding.
To add to the above, a study published in 2019 from investment management and financial planning company United Income found that the three best ages to claim Social Security benefits -- "best" in the sense that they produced the highest lifetime benefits for the retired worker in question -- were 70, 67, and 69, in that order. A whopping 57% of the more than 20,000 back-tested Social Security claims United Income examined would have optimally been made at age 70.
Social Security is in absolutely no danger of running out of funding. Don't let this misconception alter your claiming decision and "cheat" you out of a potentially sizable amount of money.
