Social Security's Financial Outlook Just Got Worse -- but Here's Why You Should Still Wait to Sign Up for Benefits

Key Points

• Social Security's Trustees just delivered some bad news about the state of the program's finances.

• Benefit cuts may be closer than previously anticipated.

• Despite an unfavorable outlook, you still shouldn't rush to claim Social Security early.

• The $23,760 Social Security bonus most retirees completely overlook ›

Social Security isn't exactly known as a program whose finances are stable. There's been talk of Social Security needing to cut benefits for years. But the program's most recent Trustees Report just delivered some bad news.

Social Security's combined trust funds are expected to run dry by 2034. And the OASI (Old-Age and Survivors Insurance) is expected to be depleted by 2033. This means that Social Security cuts could easily be less than a decade away.

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In light of that, you may be inclined to claim Social Security as early as you can. But here's why you may want to rethink that plan.

Benefit cuts aren't a given

You're entitled to your Social Security benefits without a reduction if you hold off until full retirement age to file for them. Full retirement age is 67 for anyone born in 1960 or later.

However, you're allowed to sign up for Social Security at any point once you turn 62. And you may now be thinking of filing for Social Security at 62 to get your money before benefit cuts arrive.

One thing you should know, though, is that benefit cuts aren't guaranteed to happen. Lawmakers have different options they can work with to avoid that unwanted scenario. These include raising full retirement age, increasing the Social Security tax rate, and increasing the amount of wages that are subject to Social Security taxes each year.

If you're on the cusp of turning 62, it pays to at least sit tight a bit and see what ideas lawmakers come up with rather than rush to file for benefits right away. Even though lawmakers have been slow to react to the issue of Social Security's impending financial shortfall, this year's Trustees Report might give them the push they need to start prioritizing a solution that stops benefit cuts from happening.

An early filing won't necessarily help your financial situation

You may be inclined to claim Social Security as soon as possible to get ahead of benefit cuts. But if they do happen, and you claim Social Security early, you'll only reduce your benefits even more.

Say lawmakers can't prevent Social Security from cutting benefits, and those monthly payments end up decreasing by 20% universally. That's going to deal a blow to your retirement income.

But if you claim Social Security at age 62 with a full retirement age of 67, you'll be slashing your benefits by 30% by virtue of that move alone. And then, if broad program cuts happen, you'll be looking at even less money in total.

The larger a monthly check you start out with, the less benefit cuts are likely to hurt you. So it could pay to wait until full retirement age to file, or even beyond it. For each year you delay Social Security past that point, up until age 70, your monthly benefits rise 8%.

Don't make a decision you might regret

It's pretty clear that Social Security's financial situation isn't rosy. But that doesn't mean claiming benefits early is an optimal solution. But before you commit to doing that, it could pay to see what potential fixes lawmakers come up with. And it definitely pays to run the numbers carefully and understand the financial implications of taking benefits ahead of full retirement age.

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