Don't Want Your Social Security Benefits Cut? Then Don't Do This.

If you've been reading about Social Security in the news, you may be aware that the program's finances aren't in such great shape. In fact, Social Security faces a 22% benefit cut if Congress doesn't implement changes to prevent it.

Of course, staving off Social Security cuts is easier said than done. The solutions to prevent Social Security cuts run the gamut from raising the program's full retirement age to increasing payroll taxes. As such, it's easy to see why lawmakers haven't made any firm plans to shore up the program's finances.

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But while there's a decent chance Congress will be able to prevent a broad Social Security cut, it's on you to prevent a cut to your personal monthly checks. And if you want to avoid a reduction, you'll need to avoid filing for benefits too soon.

Understand the ramifications of filing early

Once you turn 62, you can claim Social Security benefits at any time. But if you want those monthly benefits without a reduction, you'll need to wait until your full retirement age to file, which is 67 for anyone born in 1960 or later.

Now, the more months you claim your Social Security benefits ahead of full retirement age, the more significant a reduction you'll face. For example, filing for Social Security 12 months early will cut your benefits by about 6.67%, whereas filing at 62, which is 60 months early, will reduce those monthly checks by about 30%.

But you should know that any early claim you make generally results in a permanent reduction in benefits. So it's important to put a lot of thought into your decision to claim. And if you do decide to file early, you'll need to figure out exactly how much less money you'll receive each month as a result and whether your retirement budget can survive that hit.

Also recognize that Social Security benefits are subject to a cost-of-living adjustment (COLA) each year to help keep pace with inflation. If you reduce your benefits by filing ahead of full retirement age, each COLA that comes through is going to be worth less to you on a dollar basis, since your checks will be smaller.

How to choose an optimal filing age

Of course, claiming Social Security early isn't always a mistake, even though it leads to reduced benefits. You may be better off filing for Social Security ahead of full retirement age if your health is poor and you feel you're unlikely to live very long. That could result in a larger lifetime benefit from Social Security, since your checks will start sooner.

Claiming Social Security early could also make sense if you're unable to continue working and would otherwise need to rely on debt to cover your day-to-day expenses. And finally, taking benefits early could be a smart move if you have a lot of retirement savings and want to enjoy those monthly checks when you're healthier and have more energy to travel and do things.

The point, however, is to recognize that if you don't like the idea of potential Social Security cuts on a broad level, filing at full retirement age can help you avoid a benefit cut at the personal level. And remember, while broad cuts aren't a given, you can't assume the best.

If you claim Social Security early and benefits are then reduced broadly, you might end up with even less monthly income than expected. So be sure to keep that in the back of your mind as you make your decision.

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