Should you apply for Social Security sooner because of reduced benefits? | Personal finance
The most recent report from Social Security administrators was mixed. On a positive note, the trustees have pushed back the date when the program’s trust funds are expected to run out from 2034 to 2035, buying seniors one more year without having to worry about benefit cuts. But on a less positive note, these benefit cuts are still very possible, given the program’s looming financial shortfall.
If you’re planning for your retirement, an important decision to make in advance is when to register for Social Security. But should you claim benefits early in light of potential benefit reductions?
Make the right call
Chances are, Social Security will become an important source of income for you in retirement. It is therefore crucial that you do your best to reach the correct reporting age.
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The earliest you can register for Social Security is age 62. But that could mean reducing your benefits by signing up early.
For each month you deposit for benefits before full retirement age (FRA), they are permanently reduced. And FRA doesn’t come into play until age 66, 67, or somewhere in between, depending on your year of birth. So if you file for benefits at age 62, you can expect your monthly payments to be 25% to 30% lower than they would have been in FRA.
Meanwhile, 62 has long been a popular age to enroll in Social Security. But now, in light of benefit cuts, we could see even more seniors rushing to file for Social Security as soon as possible.
But it may not be the right choice. As it stands, seniors on Social Security could start losing more than 20% of that income due to a universal cut in benefits. This is something that you, as an individual, will not be able to prevent.
But what are you box prevent deals an additional blow to your benefits by registering to start receiving them at age 62. And if you arrive at retirement without a lot of money in savings, it pays to consider applying for Social Security at a later age to help compensate.
Can benefit reductions be avoided?
To be clear, right now, Social Security cuts are only one possibility. If lawmakers can find a way to pump more money into Social Security, these cuts could end up being avoidable.
But lawmakers are also slowing down time in this regard. After all, 2035 may seem a long way off, but in reality, it will take a lot of advanced planning to find a solution to Social Security’s financial problems. So, for now, it’s best to assume that the Social Security cuts will be happen – and let that information shape your retirement planning.
At the same time, while cuts to Social Security are inevitable, that doesn’t mean the program is bankrupt. And if you file for benefits as soon as possible in an effort to earn more money, you could end up with significantly less Social Security income over your lifetime.
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