For tens of millions of retirees, the Social Security program serves as a cornerstone of financial support allowing the aging population to rest easy knowing that they have a stable source of income during their sunset years. The program recently celebrated its 90th anniversary, however, this milestone came amidst growing concerns for the future funding of the program.
The annual report from the Social Security Board of Trustees for this year has revealed that a major trust fund is projected to become insolvent by 2033 if Congress does not act now. If this insolvency does come to pass, an automatic cut to benefits of up to 23% will be triggered. Despite this, it is crucial to note that because of the way that the Social Security program is funded, it can never go completely bankrupt.
This is due to the program being primarily funded by a dedicated payroll tax which the current workforce pays into to be claimed back upon retirement — meaning it is a continuous cycle. Regardless of this, due to the possibility of the trust fund becoming insolvent, those nearing retirement may feel inclined to claim their benefits early for fear of losing out entirely. Claiming early, however, is not the optimal choice to make financially speaking. Here is what you need to know.
Deciding when to claim Social Security
When planning out your retirement income, it is important to know that whilst Social Security benefits can be claimed from age 62, this is considered as claiming early and will likely result in your benefits being reduced. This is because the program has a Full Retirement Age in place. As part of the 1983 amendments, it had been decided that the Full Retirement Age (which was 65 at the time) would be gradually increased yearly in two month increments until it reached 67. This was implemented so as to maintain the financial health of the program in the face of growing life expectancy.
For 2025, the FRA increased to 66 years and 10 months for those born in 1959. Next year, the FRA was face one final increase, bringing it up to 67 years of age for those born in 1960 and later. Subsequently, waiting to claim until your FRA will ensure you receive the full benefit amount that you are entitled to. Claiming before you reach your FRA will result in your benefits being cut by up to 30%, depending on how many months there are between the age at which you claim and your FRA.
“Working longer — when possible — has been generally accepted as good advice for a secure retirement,” a report by the Center for Retirement Research at Boston College notes. “It directly increases current income; it allows people to contribute more to their 401(k)s; it shortens the period of retirement; and, importantly, delaying claiming of Social Security results in a much higher monthly benefit.”
Exactly how much will you lose by claiming early?
As of May earlier this year, the average benefit checks comes in at $2,006.69. Using someone born between 1943-1954 and a base benefit amount of $2,000 as an example, if this person claims at age 62, they will face a 25% cut to their benefits. The FRA for someone born during these years is 66, which means that there will be 48 months from age 62 to age 66. As a result, this person will only receive $1,500 in benefits when claiming early.
For someone born in 1960 or later, the FRA is 67, however if they claim at 62, there will be 60 months before they reach FRA and as a result, their benefit will be reduced by 30%. This means that instead of $2,000, they will only receive $1,400.
Conversely, if you delay claiming until you are 70, you will earn “delayed retirement credits” which will earn you a benefit amount that is higher than what you would have received had you claimed at FRA. When compared to claiming at 62, claiming when you are 70 could earn you up to 76% more in benefits.