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Social Security’s Problems Cause Rush To Bad Decisions

Most Americans who aren’t yet receiving their Social Security retirement benefits plan to claim the benefits early, according to the 2023 Schroders US Retirement Survey.

Only 10% say they plan to wait until age 70 to claim the maximum Social Security retirement benefit.

Many plan to accelerate their benefits. About 40% say they will claim benefits between ages 62 and 65, ensuring that they won’t receive the full retirement benefit.

The survey revealed that 95% of those between the ages of 60 and 65 were aware they would be foregoing higher benefits by claiming when they intend to. A full 72% of all age groups said they knew they would be claiming before full retirement age and were aware of the financial consequences.

Social Security’s pending insolvency was the reason given most for taking benefits before 70 and before full retirement age. About 44% said they would claim early because they were concerned Social Security would run out of money or stop making payments.

This is an unfortunate misunderstanding of Social Security’s finances.

It’s true that the most recent estimate is the Social Security retirement trust fund will run out of money in 2033. I think that estimate is optimistic and the trust fund will run short of funds a few years before that.

But the full Social Security retirement program won’t run out of money at that point and won’t stop making payments to beneficiaries.

Social Security continues to collect payroll taxes from employees, employers, and the self-employed. The official estimates are that for at least 75 years those taxes will be sufficient to pay 75% to 80% of promised benefits.

The worst-case scenario is that Congress does nothing to shore up the system. When the trust fund runs out of money, Social Security will be forced to reduce benefit payments across the board by 20% to 25%. The exact cut will depend on estimates that year of the amount of tax revenues to be received and benefits to be paid.

I think it’s more likely that Congress will step in at the last minute and make some changes so that those in or near retirement won’t see benefit reductions, except perhaps for high income people. My thinking at this point is that Congress is likely to make up a lot of the shortfall by supplementing Social Security with general fund revenues and moving Social Security away from being a self-supporting program.

If Congress doesn’t act and benefits are to be reduced, I want my benefits to be reduced from the higher level promised by waiting to claim them instead of the lower level received by claiming benefits early.

Social Security’s financial problems are causing people to make bad decisions that will cost them significant wealth during their retirement years. Understand the facts and the consequences of different options. Make the choice that’s best for the long term.

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