Every year, the Social Security Administration’s board of directors, known as the trustees, releases a report on the program and its predictions for the future. And as every year, many beneficiaries panic when it is said that the Social Security trust funds could be in difficulties and the proposal of the cuts comes up.
If Congress doesn’t find a solution soon, the cuts could be as close as 2035. The dilemma is that Social Security is having cash flow problems. This retirement and disability benefits program is dependent on payroll taxes.
The Money You Pay into Social Security Is Not “Your” Money
If you are currently working without retiring, you contribute money to Social Security, those dollars that are deducted from your payroll month by month do not go to a personal account, but go to pay current retirees. When you retire, other workers will make their contributions to Social Security and maintain your retirement, and so on.
The problem is that fewer and fewer workers are contributing to Social Security, and more and more people are retiring with long life expectancies. The fact that we are becoming more and more long-lived is a problem for Social Security programs, not only in the United States, but in dozens of countries around the world that have the same discussion.
The Social Security Administration has two trust funds that you can rely on if you don’t have enough cash coming in from taxes and other sources of income. These funds are: the Old-Age and Survivors Insurance (OASI) Fund, as well as the Disability Insurance (DI) Fund.
The SSA has been using the trust funds so as not to reduce benefits
The other big problem is that the SSA has been having to reach into the vault where those billions of Social Security trust funds are kept. Estimates from the SSA itself say that they are likely to run out by 2035.
If nothing changes by then, the program will only be able to pay what it receives in income and it is estimated that there will be a 17% reduction in future benefits: you will only be paid 83% of your well-deserved monthly check if you have to retire by then.
But as in any financial investment you do not have to get carried away by panic, and you have to evaluate all the possibilities very calmly. Let’s do that next.
Should You Claim Social Security Benefits Early?
The first thing you should know is that many experts recommend delaying the retirement age as much as possible. In some cases, they recommend delaying until the age of 70 the age at which you start enjoying your retirement.
And even if there were cuts, the benefits will not disappear completely. As long as workers continue to pay taxes, there will always be funds available to cover some of the benefits. In fact, most of them, as high as 83%.
Remember that applying for benefits before you reach your full retirement age (FRA) results in a permanent reduction in the size of your monthly checks.
If you apply for benefits at the age of 62, there may be a cut of up to 30% for life. Keep in mind that if 17% cuts are implemented later, relying on your retirement to pay all your living costs can have a big impact on your economy.
Delaying the claim can be a smart strategy if you are going to rely heavily on your benefits. Waiting until age 70 could mean a bonus of 24% or more, which translates into hundreds of additional dollars a month.
How to Choose the Right Age to Claim Social Security
The best age to start claiming benefits varies by individual and depends on several factors, including how much you will depend on benefits during your retirement.
If you have significant savings, claiming early may not be a bad option, even if there are benefit cuts in the future. Although the cuts could reduce your payments, if Social Security is not going to be your main source of income, an early application could benefit your retirement.
We have to mark that this article is for informational purposes only and is never intended to be a professional advice. If you are considering retirement, consult with a retirement or Social Security expert who will definitely help you make the best decision.