retirement

Should You Take Social Security to Collect Early Before Cuts Are Made?

Kristin Hitchcock

Published: July 3, 2024 12:15 pm

Social Security provides financial security to millions of retirees around the United States. However, this program faces ongoing challenges with funding as the birth rate drops. With fewer workers being born, there are few people paying for retirement benefits. The Social Security Administration itself has pointed out these difficulties. 

Social Security will only be able to pay for 75% of promised benefits by 2035, according to current projections. 

This looming problem has made many Americans wonder if they should take out Social Security early to avoid potential cuts. The fear of reduced benefits is understandable, and the decision to claim at 62 works for many. 

However, claiming benefits early does have a long-term financial impact, and you should consider your personal retirement plan and preparedness.

The Downsides of Claiming Early

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Claiming early does not mean that you just get your money sooner. When you claim Social Security early, you permanently reduce your future monthly benefit. This is because you’re spreading the same amount of benefits over more years, leading to a lower monthly check. 

You can begin receiving Social Security at 62. However, the sooner you receive Social Security before your full retirement age (which is around 66 or 67), the lower your benefit will be. 

For instance, let’s say your full benefit is $1,500 per month. If you claim at age 62 as soon as you’re able, your benefit will be reduced by 30%. This translates to a payment decrease of $450 per month, leaving you with around $1,000.

That’s a substantial difference and can directly impact how much benefits you receive. You may actually end up receiving less money over your lifetime, especially if you have a lower lifespan. However, the long-term financial loss of a benefit reduction should also be considered. 

The Upsides of Early Claiming

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While the permanent reduction in benefits is a significant drawback, there are situations when claiming Social Security can be a strategic decision. For instance, here are some cases where you may want to claim Social Security early:

• Immediate Financial Need: If you face an immediate financial hardship due to health issues, unexpected expenses, or job loss, claiming Social Security early can provide a guaranteed income stream to help bridge the gap.
• Specific Retirement Goals: Sometimes, a retirement goal begs for you to claim Social Security early. For instance, if you want to travel or take part in a very active hobby, you may want to claim early and reduce your working hours. 
• Continued Work Potential: If you want to continue working part-time, the reduction in benefits may be offset by your continued earnings. That said, there is a cap on how much you can receive while still working before your full retirement age. After that, you can continue receiving benefits and income as much as you’d like! 
• Guaranteed Income Stream: Claiming early offers the benefit of a guaranteed income stream. You know you’ll receive your Social Security check each month. If your financial situation is a bit iffy, this benefit in itself may be enough to claim early. 

However, it’s important to weigh any immediate financial gain against long-term loss. 

Individualized Planning is Key

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The decision to claim Social Security early is not a one-size-fits-all proposition. For some people, claiming early will make complete sense. Other times, it may be best not to claim early. Here are the factors you should consider when navigating when to claim Social Security:

• Current Health and Life Expectancy: When you’re planning for retirement, one of the most important factors to consider is how long you expect to be around. How many years of retirement will you need to fund? If you expect a shorter lifespan, the long-term reduction of claiming early may not be a huge concern. On the other hand, if you anticipate living a long life, the permanent reduction may be significant. 
• Retirement Goals: What do you plan to do in your retirement? If you want to travel tons or take up expensive hobbies, you’ll need more money and may want to wait longer. Consider the financial resources needed to achieve the retirement that you want.
• Potential for Continued Work: As mentioned earlier, if you plan to continue working part-time after claiming benefits, it can offset some of the reduction in income. However, that depends largely on whether or not you can continue working. If your health is declining, that might not be an option. (And, even if it is an option now, will it be an option later?)
• Other Retirement Income: You need to consider how well-prepared you are for retirement in other respects, too. For instance, do you have a pension or investment portfolio? A diversified retirement portfolio can help alleviate the financial impact of claiming Social Security early. On the other hand, a few extra years of work may be necessary if you don’t have a sizable savings account. 

If your situation is particularly complicated, you might need to consult a financial advisor. They can help you create a personalized claiming strategy that works with your financial situation and retirement goals. If you have many sources of income and a spouse, things can get very complicated quickly!

Addressing the Fear of Cuts

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There is the potential for Social Security benefit cuts in the future. However, that is always a potential. The Social Security Administration has said that the program, as it stands, is not sustainable. Changes will likely be made in the future, such as when the retirement age was raised previously. 

It’s always possible that program details could change by the time you reach full retirement age. However, claiming early doesn’t necessarily save you from those changes, either. Those already receiving benefits may find their monthly check lowered, depending on the changes that occur. 

It’s important to plan according to your retirement goals, health, and financial readiness – not out of fear about Social Security cuts. While this is a factor in how much money you’ll receive, there is no way to predict how Social Security will change in the future. Claiming early out of fear can put you in a troublesome position later, especially if you aren’t prepared for the lower monthly check. 

Plus, you aren’t achieving your goal if you’re trying to claim early to avoid a lower monthly check. Your monthly benefits get lowered when you claim before full retirement age. Even if benefits are reduced in the future, waiting until full retirement age may still provide you with more income than claiming early.