Some Americans are claiming Social Security years before full retirement age out of fear their benefits will be cut once the program runs short on cash.
They say they want to get as much in benefits as they can before 2034. That is when the retirement program is projected to deplete its reserves, triggering a 23% reduction in benefits, unless Congress acts. Economists and financial advisers generally discourage claiming early. Most expect Congress will prevent a precipitous drop in benefits.
It is unclear how many retirees take Social Security early because of anxiety over its finances, though a quarter of men and 27% of women filed for benefits in 2021 when they turned the minimum claiming age of 62.
Darlene Cacchiotti, 64 years old, said claiming her benefits soon after retiring at 63 seemed like a safer bet than counting on Congress. The Myakka City, Fla., resident said she and her husband have pensions and could afford to wait to claim Social Security, which allows people to start their retirement benefits any time between ages 62 and 70, and increases the payment for every month of delay.
The former secretary opted to take about $400 a month less than she would have received at her full retirement age of nearly 67. “I was afraid the money wasn’t going to be there,” she said.
Claiming benefits early is a gamble because it means accepting a lower monthly income for life, economists and financial advisers say. Doing so to protect against benefit cuts might backfire, they say, because while Congress has cut benefits when it shored up the program in the past, the consensus this time is that officials will come up with a fix that likely spares older adults.
Some retirees might be taking action because they don’t have enough savings to delay claiming benefits. The program provides 37% of men and 42% of women with half or more of their income, according to the Social Security Administration.
Anxiety over Social Security’s finances
In June, the trustees for the Social Security Trust Funds projected a 23% cut in retirement benefits if Congress fails to act on the program’s finances before 2034. In such a situation, benefits would be financed mainly by the money the government collects through a 12.4% payroll tax on wages for Social Security, which currently falls short of covering the program’s full costs.
The program’s problems have been top of mind for more Americans since the State of the Union address in early February, when President Biden accused Republicans of angling to cut Social Security in negotiations to raise the nation’s borrowing limit, something Republican leaders have denied.
When the program’s finances are referenced negatively in the news, workers tend to report a desire to claim benefits earlier, according to a 2021 study by the Center for Retirement Research at Boston College.
Greg Young, 58, said the uproar during the State of the Union last month made him nervous about the program’s finances so he decided to start at 62. The retired teacher said he had initially planned to delay claiming to get the higher benefit he is eligible for at 67, his full retirement age.
“I paid a lot of money into the system over the years,” said the Somers Point, N.J., resident. “I’d like to see something in return.”
Jonathan Bird, a financial adviser at Farnam Financial in Phoenix, said about 10% of his clients are concerned about Social Security “not fulfilling its promises.” Some are saving more to offset the risk of future benefit cuts, he said.
One client who decided to claim at 62 believes those already receiving benefits will be protected from any future reductions, said Mr. Bird. He said the right answer for each person depends on longevity and whether they have the savings or income to delay claiming. He said his approach is to “help clients make informed decisions and let them do what they think best.”
The advantage of delaying benefits
For many, the math favors starting to take Social Security benefits at 70, when monthly benefits before cost-of-living adjustments are 76% higher than at 62, according to Laurence Kotlikoff, a Boston University economist and founder of Maximize My Social Security, which advises people on Social Security.
Claiming earlier makes sense for those with relatively short life expectancies. A person who postpones benefits until age 70 instead of 62 would have to live to at least 80 to maximize total lifetime Social Security income and come out ahead, Prof. Kotlikoff said.
Even if benefits are cut as much as 23% in 2034, the math still favors delaying benefits in many cases, said Prof. Kotlikoff.
Still, “the path we’re on leaves massive uncertainty for people trying to plan their retirements,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center.
What’s next for Social Security
Social Security’s finances are under pressure because of the aging U.S. population. The number of workers contributing payroll taxes is rising at a slower rate than the increase in Social Security beneficiaries, as generations with lower birthrates replace the baby boomers in the workforce.
Benefits have been cut before. When Congress passed bipartisan legislation in 1983 to bolster the program’s finances, it delayed Social Security’s annual cost-of-living increase by six months and began taxing a portion of benefits for recipients with higher incomes, said Douglas Arnold, a professor emeritus at Princeton University and author of “Fixing Social Security.”
Prof. Arnold expects workers, rather than retirees, to bear most of the burden of tax increases and benefit cuts this time and says lawmakers are unlikely to muster the political will to act until the 2034 trust-fund depletion date draws near.
To discourage retirees from claiming benefits early, a bipartisan group of senators, including Sen. Bill Cassidy (R., La.), recently proposed changing the term Social Security uses to describe claiming at 62 from “early eligibility age” to “minimum benefit age.” The proposal calls for changing the term for claiming at 70 from “delayed retirement credit” to “maximum benefit age.”
By Anne Tergesen (WSJ)