Afraid of Social Security Cuts? This Decision Could Make Things Even Worse for You

If you've been reading the news on Social Security, you're probably aware that the program is facing the possibility of serious benefit cuts.

The program's Trustees estimate that Social Security's Old-Age and Survivors Insurance Trust Fund will run dry by the fourth quarter of 2032. Once it's empty, the program may have sufficient revenue to cover only 78% of scheduled benefits.

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A 22% cut to Social Security could be catastrophic for many of the millions of beneficiaries today. But if you don't like the sound of a 22% Social Security cut, you'll need to be very careful with your filing decision.

Claiming Social Security too soon could slash your benefits as well

Your Social Security benefits in retirement are based on your 35 highest-paid years of wages, indexed for inflation. But your filing age helps determine how much money Social Security pays you each month.

If you claim benefits at full retirement age, which is 67 for anyone born in 1960 or later, you'll get your monthly checks without a reduction. But for each month you file before full retirement age, your benefits get reduced.

The earliest age to sign up for Social Security is 62. If you file then, you could be looking at a 30% reduction in benefits compared to waiting until 67. That's a worse outcome than the potential 22% cut the Social Security Trustees are warning about.

Choose your filing age carefully

Of course, it's important to realize that broad Social Security cuts aren't a given. Lawmakers could implement various solutions to prevent a broad reduction in benefits, whether by making tax changes or by pushing Social Security's full retirement age back by a few years to keep more people in the labor force longer.

But if you claim Social Security ahead of full retirement age, your benefits will be reduced. There's no question about it. And if you file as early as possible, you could be looking at significantly smaller Social Security checks.

For this reason, make sure to choose your filing age carefully. Think about your retirement income needs, savings level, and health, as all of these factors could help determine the optimal claiming age for you.

And remember, your filing options don't stop at full retirement age. For each year you delay your claim past that point, your Social Security checks increase by 8% a year, up until age 70. So if your goal is to get the most Social Security possible, don't just settle for full retirement age as your claiming age.

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