Some future retirees could find themselves with less lifetime Social Security income and with smaller monthly benefits than they should receive.
Now, you may assume that's because the benefits program is going to run out of money. In reality, though, there's actually another reason many of the seniors of tomorrow could find themselves with smaller retirement checks than they anticipated. And this other potential cause of lost income is a lot more likely than Social Security going broke.
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While an automatic benefit cut is unlikely, this is a surefire way to reduce your monthly check
Many Americans are deeply fearful about the future of Social Security, and unfortunately those fears could result in choices that cause the very thing to happen that so many people are afraid of.
See, one recent study shows that only 10% of future retires plan to wait until the age of 70 to claim benefits. The same study also showed the most likely reason for an early claim was fear of Social Security running dry. Concerns about the program's solvency were cited as the justification for an early claim by about 44% of survey respondents.
The problem is, starting benefits early is 100% certain to result in a smaller monthly benefit. And for many people, it will lead to less lifetime benefits as well. By contrast, the chances that Social Security is actually going to run out of money are very small.
Social Security isn't going to stop paying benefits, despite what most people think
To be fair, concerns about the solvency of Social Security are not entirely unfounded. The most recent Trustees Report released in 2024 shows the combined retirement and disability trust funds are expected to run dry as soon as 2035.
However, this doesn't mean what most people think. Social Security isn't going to have no money to pay benefits just because the trust fund is depleted. It's going to continue to collect revenue. And that revenue should be enough to pay out about 83% of promised benefits. Now, a 17% cut in monthly retirement income isn't great and it would be hard for many people to cope with the financial loss. But it's not as devastating as getting no benefits at all, which is what a lot of people fear when they say Social Security is going broke.
Furthermore, Congress has taken action in the past to shore up Social Security and it almost assuredly will again. After all, seniors are reliable voters who are likely to be pretty angry if they see their income slashed. Politicians are not going to want to be the ones to take the blame for not making fixes. They instituted reforms in the 1980s when Social Security was facing a financial crisis and changes are inevitable in the future if it looks like a benefits cut is actually going to happen.
So, those automatic benefit cuts most people fear are probably not coming and even if they are, they won't be as big as you think.
Unfortunately, since Social Security's Trustee Report was recently released, the news is filled with dire headlines about an impending future cut to benefits. This only increases the chances of people opting to claim benefits early because they feel they need to do so before the money runs dry.
Those who make that choice that will definitely get hit with early filing penalties and lose the chance at delayed retirement credits, though. And that could have a big impact. Claiming benefits at 62 with a full retirement age of 67 would lead to a 30% cut in the size of your monthly check -- bigger than the 17% automatic cut that could happen in 2035 if Congress didn't act to stop it. And failing to wait beyond full retirement age until 70 would mean giving up delayed retirement credits worth up to 8% per year of delay.
And with the data showing around 60% of retirees end up with more lifetime income if they wait to claim their first check until 70, the odds are that a misguided decision to make an early claim will definitely doom future retirees to a definite reduction in lifetime benefits as well as monthly benefits -- despite that being the very thing they're trying to avoid.
Don't let the frightening headlines lead you to an all-but-certain benefit reduction just to avoid a cut that's very unlikely to happen. Make your decision about claiming Social Security based on a careful assessment of your health, the needs of your spouse, and the status of your savings instead of based on scary headlines that may not paint the full picture.
