Retirees Worried About Possible Social Security Cuts Risk Making Matters Worse if They Do This

When you were younger, you might have thought of retirement as a time of freedom, a reward after a long career. But now you’re there, and it feels anything but rewarding. You’re living on a fixed income with no idea how long that money has to last you, and you’re scared that Social Security will be cut by 22% in just a few years.

You might think your best play is to sign up as soon as you can to lock in your benefit amount before potential cuts take effect. But that could actually make things much worse for you in the long run.

A 22% Social Security benefit cut isn’t likely

While a 22% Social Security benefit cut is technically possible, given the latest projections, it’s not likely. Washington knows that this program is extremely important to seniors, and that slashing benefits by nearly a quarter would leave a lot of unhappy voters. So it will almost certainly take steps to avoid this outcome.

We don’t yet know what the reforms will look like, but there are ways to fully fund Social Security benefits for decades to come without slashing anyone’s benefits. This might involve raising payroll taxes on workers, which has its own trade-offs. But that might not affect you.

Claiming Social Security at 62 comes with a guaranteed loss

If you rush to lock in your Social Security benefit by claiming as soon as you turn 62, you’re agreeing to accept a 30% benefit cut. That’s because the Social Security Administration reduces your benefit for each month you claim checks under your full retirement age (FRA) — 67 for most people today.

This loss is generally permanent, and it can lead to a smaller lifetime benefit than you would have received had you waited until your FRA or until you qualified for your maximum benefit at 70 to apply. That doesn’t mean waiting to sign up for Social Security is always your best option, though.

Claiming early can make sense if you’re unable to cover your expenses without your benefits. Some people with short life expectancies also prefer to apply early so they can get as much as they can while they’re still alive. Others, especially if they have family who they expect to be dependent on their survivor benefits after they pass away, opt not to claim checks at all so their relatives can get more money later.

If you expect to have an average or above-average life expectancy and you can afford to delay benefits, waiting to sign up might increase the lifetime benefit you qualify for. This is likely to be true even if Washington later reforms the program, so choose the starting age that makes the most sense for you based on current rules rather than on fears of possible benefit cuts. When the government announces changes to Social Security, you can adjust your plans if needed.