Answers by Joanna: Should I take Social Security early?

Q: The Social Security Administration sent out a notice that benefits would be reduced in 2034. Should I take Social Security early?

I recently received the following question from a client: The Social Security Administration included a form called Retirement Ready in my Social Security statement and it says that Social Security benefits will last until 2034, and then they’re going to only pay out $780 for every $1000 in benefits. If I wait until I’m 70 that means I will only get full benefits for three years before they start cutting them. Does it make any difference for me to wait until I’m 70 or would I benefit by starting earlier? This is very irritating that they have spent our Social Security money after I have paid into it all my life. Thoughts? 

A: In terms of Social Security solvency, it is very difficult to predict what might happen. The figures my client is referring to are the Social Security administration’s estimates based on no changes to the system. Obviously, something has to be done to fix Social Security, but this has been an issue that the legislature has known about for years and so far has continued to kick the can down the road. Given the current state of affairs with our political system, I am not hopeful that we will see a solution in the near future. My guess is it will be a rather last minute fix based on how our decision makers deal with these problems.

However, I am moderately hopeful that when Congress does decide to deal with the issue that the reduced payout will not affect older Americans. There are several ways for Congress to deal with the problem and AARP has a good article summarizing the options here. The reason I am moderately hopeful about the future of Social Security is that it has been the single most important program that lifted older Americans out of poverty. Millions of people rely on Social Security and it is a wildly popular program across the political spectrum with the public.  If Congress were to fail to act or reduce benefits for people who are near or in retirement, I think the next election would result in a dramatic upheaval at the ballot box.  Because elected officials want to keep their jobs, they are unlikely to allow this program to default or pay out less than promised.  If they make changes that would reduce benefits, I think they would make it affect younger people, like when they increased the retirement age to 67.

In terms of planning, I suggest that we keep an eye on Social Security and make our decisions on when to claim on a year by year basis.

In terms of planning, I suggest that we keep an eye on Social Security and make our decisions on when to claim on a year by year basis. This is useful both for the uncertainty of Social Security’s future and also is beneficial when we look at the timing of when to start taking distributions from your investments. For example, if we happen to be going through a protracted downturn, it can be better to start taking Social Security benefits sooner than originally planned to preserve assets. When the market is down in the early years of retirement, it can be more damaging to your retirement plans than if that same market downturn happens in the middle or later part of your retirement. By taking social security if the market is down, this would allow your assets to remain invested and rebound with the market.

AARP advocates around Social Security issues, so you may consider signing up as a member to support them or signing up to receive their alerts about political issues that could affect older Americans.

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