A big Social Security change could help beneficiaries claim more benefits. Will it affect you?
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A major change to Social Security may be coming soon after Congress passed a bipartisan bill that’s headed to President Trump’s desk for his signature.
The legislation drew broad support from lawmakers on both sides of the aisle, as it aims to help Americans make more informed choices that could potentially open the door to larger Social Security benefits, according to a press release (1) announcing the bill had passed the Senate.
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“Passage of this bill is a victory for seniors and older workers, who will now be able to make more informed decisions about their retirement benefits,” said Rep. Don Beyer. “The need for clarity on these issues gets more salient every year as Americans live longer and financial choices become more complex.”
The legislation is called the Claiming Age Clarity Act (2), and as Rep. Lloyd Smucker said in the press release, it “replaces confusing government terminology with language that better explains how the age at which someone claims Social Security affects their monthly benefit.”
The problem the law is trying to solve is that many individuals claim their Social Security at the earliest eligibility age, which is 62. In fact, while the Center for Retirement Research at Boston College (3) revealed that Americans are gradually claiming Social Security at a later age on average, they found that 62 still remains the most popular age to start benefits.
This is important because a claim at 62 is considered early filing. Starting checks then results in up to a 30% reduction (4) in a beneficiary’s primary insurance amount, which is the benefit they’d collect at full retirement age (FRA) based on their work history.
Lower benefits make it harder for retirees to support themselves, with some studies claiming that 90% of claimants (5) should wait until age 70 to collect the maximum amount.
The new law aims to help potential retirees better understand the consequences of their claiming age by altering the terms that the Social Security Administration uses to describe different options:
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Early eligibility age (62) would now be called the “minimum monthly benefit age,” to make clear that starting benefits at such an early age reduces them to the minimum.
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Full retirement age (67 for anyone born in 1960 or later) would become the “standard monthly benefit age,” so that it’s clear they can claim benefits without any reduction.
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Delayed retirement age (70) would become the “maximum monthly benefit age,” as waiting until 70 can increase benefits by up to 24% for someone with an FRA of 67.
The hope is that more retirees will wait longer if the names of each claiming age clearly reflect how starting payments at that time affects their benefit amount.
However, it’s unclear how much of an impact this would make on a practical level, as people claim benefits early for many reasons (6), including a need for the money if they can’t find work, risk aversion and fear of getting less if they delay and don’t live long enough to break even.
Regardless, a claim at 70 is still unlikely to give retirees enough Social Security income to support themselves fully, as benefits only replace around 40% of pre-retirement income (7) on average. The Social Security trust fund is also estimated to become depleted as early as 2032 (8), potentially resulting in an automatic 78% cut to benefits or legislative changes that amount to a cut, like a shift to a later FRA.
Simply put, workers looking to plan and prepare for a secure retirement might want to consider how they intend to supplement Social Security during their golden years.
Here are a few ways to build up your nest egg for retirement.
Invest regularly for retirement
Investing regularly for retirement could be the key to building a nest egg that can supplement Social Security. For instance, investing just $25 a week for 30 years means putting in a total of $39,000 over that time. At a hypothetical 7% annual return, however, this sum could grow to $126,966 (9) before fees and taxes.
If you’re looking for a place to start your investment journey, platforms like Acorns make it easy by automatically investing your spare change so that every purchase gets you a little closer to the retirement security you want.
Here’s how it works: All it takes is a few minutes to link your cards. Once you do that, Acorns starts rounding up every purchase to the nearest dollar. That $5.25 sandwich? It now becomes a $6 charge, with $0.75 going toward your future.
From there, the money goes into a diversified portfolio of ETFs that you can tailor to your risk tolerance. Along with big names like the Vanguard S&P 500 ETF, Acorns also sets you up to invest in specific sectors of the economy through custom portfolios. This includes areas like heavy industry, energy, consumer staples and utilities.
Then, once you’re comfortable with your roundups, you can supercharge your savings with recurring monthly deposits into your favorite funds. And if you sign up today with a $5 recurring deposit, Acorns will add a $20 bonus to help you begin your investment journey.
Diversify your portfolio
If you’re looking for another way to diversify your portfolio that could also prepare you for the effects of inflation or a potential economic downturn, precious metals like gold have long been seen as both a hedge against inflation and a recession-resistant investment.
That’s because, unlike fiat currencies, the precious yellow metal can’t be created out of thin air or printed at will by central banks. This inherently limited supply can help it store value in the face of inflation.
Gold is also considered the ultimate safe haven. Because it’s not tied to any one country, currency or economy, investors often flock to it — driving prices higher — in times of economic uncertainty or geopolitical instability.
Opening a gold IRA with the help of American Hartford Gold makes it possible to add this investment to your portfolio while reaping significant tax benefits of an IRA.
With a gold IRA from American Hartford Gold, you can hold physical gold or gold-related assets in your IRA, plus you have the option to roll over existing 401(k) or IRA accounts into a gold IRA without tax-related penalties. Qualifying purchases can even receive up to $25,000 in free silver.
If you’re ready to take advantage of significant tax breaks and hedge your retirement funds against economic uncertainties, claim your free information guide on investing in precious metals.
Work with an advisor
Planning for retirement can be complicated, and having the right support from a financial professional can make a big difference.
For instance, Research from Envestnet found that clients working with financial advisors who focus on financial planning, asset selection and allocation, investment selection, systematic rebalancing and tax management saw 3% higher average returns (10).
But hiring an advisor can be a lifelong commitment, which might make or break your retirement. That’s why finding reliable advisors is crucial.
Advisor.com makes it easier than ever, connecting you with a licensed financial professional in your area who can help you build a personalized portfolio.
They do the heavy lifting for you, vetting advisors based on track record, client ratios and regulatory background. Plus, their network comprises fiduciaries, meaning they’re legally required to act in your best interests.
Just enter a few details about your finances and goals, and Advisor.com’s AI-powered matching tool will connect you with a qualified expert best suited for your needs based on your unique financial goals and preferences.
You can even schedule a free, no-obligation consultation to make sure your match is the right fit for you.
Make the most of Social Security
Finally, once retirement age has arrived, you can try to make the most of your benefits by joining organizations that support retirees such as AARP for discounts on almost everything — from prescription drugs and dental plans to insurance, entertainment and travel.
AARP is one of the most trusted organizations for older Americans, partly because its services go beyond money-saving perks. They also offer guides to help you make informed decisions about making the most of Social Security, choosing the right Medicare plan and uncovering other government benefits.
Sign up with AARP today and get 25% off your first year.
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Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.
Smucker House (1); Congress.gov (2); Center for Retirement Research at Boston College (3), (6); Social Security Administration (4), (7), (8); National Bureau of Economic Research (5); Acorns (9); Envestnet (10)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.