Social Security has long been a cornerstone of retirement planning for Americans. It’s been a safety net for retirees’ financial security during their golden years. In fact, along with pensions and investments, Social Security has long been viewed as the third leg of the traditional retirement income stool. However, recent data is showing that many working Americans nearing retirement are worried that Social Security may not be as reliable as they had planned on. So what are investors and retirees to do?
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Why some Americans plan to take their benefits early
According to the Schroders 2022 U.S. Retirement Survey, only 11% of non-retired Americans aged 45 and older plan to wait until age 70 to start receiving their Social Security benefits — the age when you can maximize your monthly payments. Instead, a significant portion prefer to claim their benefits early.
Nearly half (48%) plan to take their Social Security benefits between the ages of 62 and 65 — despite the majority being fully aware that delaying Social Security payments can result in bigger monthly checks down the line.
According to the survey, there are two main causes for this. First, many expect to need the money sooner for circumstantial reasons.
But another growing trend is concern about the solvency of the Social Security system.
With projected shortfalls looming, some may choose to claim benefits early out of fear that they won’t receive full benefits in the future.
What’s the Future of Social Security?
The future of Social Security is a concern, especially as the system faces a shortfall of cash reserves that could affect the benefits of future recipients.
The number of Americans 65 and older is estimated to increase to 78 million by 2034 — 22 million more than today. The same year, the Social Security board of trustees reports that the program will run out of cash reserves.
This means there will then be more retirees taking Social Security benefits than working Americans paying into them.
The expectation is that this will open a funding gap that will leave only 78% of scheduled Social Security benefits covered after 2034.
If no policy changes are made, benefits could have to be cut by 24.9%.
How can I prepare for the future of Social Security?
Several ideas for balancing Social Security’s budget are being considered. Only time will tell what actually happens.
In the meantime, preparing for the future of Social Security involves understanding the system and planning accordingly:
- Keep in mind your total financial picture. How much does your retirement rely on Social Security? What else figures into your overall plan, and how do they fit together?
- Understand Your Benefits: Learn about how Social Security benefits are calculated and what factors can affect your benefit amount.
- Plan for Changes: Be aware that changes may be made to the Social Security system in the future and plan your retirement strategy accordingly.
- Consider Your Retirement Age: Think about when you want to retire, and remember that retirement doesn’t mean you have to start drawing Social Security benefits.
- Consult a Financial Advisor: A financial advisor can provide personalized advice based on your specific circumstances.
- Focus on what you can control. Don’t let fear of the unknown motivate you to make hasty decisions.
You’ll want to consider both personal circumstances and the broader context of Social Security’s future when trying to make informed decisions about when to claim benefits.
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When should I claim Social Security benefits?
With careful planning and sound advice, it’s still possible to secure a comfortable retirement — even with the uncertainty of future Social Security policy.
However, it’s more important than ever to make informed decisions about when to claim benefits.
You need to think about individual factors as well. Your health, financial situation, and life expectancy are a few relevant things to consider. And I would be remiss if I did not mention one of the biggest considerations — benefits for a surviving spouse.
There is no “one size fits all answer”. At Good Life Financial Advisors of NOVA, we specialize in helping you choose the right time to take your Social Security and create a plan for a great retirement.
Contact us for a complimentary analysis of your Social Security.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Good Life Advisors, LLC, a registered investment advisor. Good Life Financial Advisors of NOVA and Good Life Advisors, LLC, are separate entities from LPL Financial.