The latest official projection estimates that Social Security's Trust Fund will be exhausted in 2033, when it's forecast that about 77 percent of promised benefits can still be paid. Does this mean you should start your Social Security benefits as soon as possible so you receive benefits before they're cut?
I was recently asked this question by a reader who'll turn age 70 in 2031. If this person waits to collect benefits until that age and benefits are reduced in 2033 because of funding challenges, then he would have collected full benefits for only two years. By starting Social Security at age 62, however, this reader might collect more money -- or at least will have collected benefits for 10 years instead of two by 2033.
Here's some information to consider when thinking about this question. You can start Social Security retirement benefits at age 62 -- that's the earliest eligible age with the lowest monthly benefit. But your income is increased for each month you delay starting Social Security, until age 70, when benefits have been increased to the maximum amount possible. Many retirement analysts, including me, advocate delaying Social Security as long as possible -- to age 70 if you can -- as a way to maximize your expected lifetime payout. This strategy also increases the benefits paid to surviving spouses in most situations.
So how do you reconcile these two points of view?
I recognize that many people have varying opinions on this topic, so I'll just tell you what I'm doing personally and my reasons, based on my experience as an actuary who's spent a lot of time studying and thinking about these questions. I'm planning to delay my Social Security benefits until age 70 for the reasons cited above, and I'm working enough now to cover my living expenses while I let my retirement resources grow until age 70.
I'm not letting Social Security's current funding challenges affect my decision on when to start benefits because I believe Congress will act to replenish the retirement program. Social Security is enormously popular, and our political leaders would be highly reluctant to reduce benefit payments to millions of retired Americans, otherwise known as voter. The Trust Fund has come close to depletion a few times in the past, and Congress has always taken steps to assure that benefits will continue to current retirees and beneficiaries.
I believe Congress will likely adopt some combination of small benefit reductions and tax increases to prevent the Trust Fund from running dry. Congress made major adjustments to Social Security benefits in 1983, the last time the Trust Fund was close to depletion. At that time, the amount of the adjustments depended on your year of birth, not the year you started your Social Security benefits.
Congress also protected people close to retirement from benefit cuts -- the biggest impact was on the youngest workers who were far from retirement. The various proposals our leaders are currently studying follow that pattern: protecting people close to retirement and purposefully preventing a situation where people would be incented to start Social Security to avoid a benefit reduction.
There is no precedent for reducing benefits because the Trust Fund has run dry. Current law doesn't permit expenditures for benefits in excess of currently available amounts in the Trust Fund. In the unlikely scenario that Congress allows the Trust Fund to be exhausted, there's no automatic mechanism for reducing benefits to restore the funding balance. If lawmakers don't act, the Social Security Commissioner would need to decide whether to delay paying full benefits, or to cut benefits, until Congress acts.
The upshot: This scenario is so remote that I'm not letting it influence my decision on when to start my Social Security benefit.