Do you need to take social security early before it runs out?
Do you need to take social security early before it runs out?

Do you need to take social security early before it runs out?

After paying into the social security system for decades, you have a big decision to make when you retire: when to start receiving benefits. The age for full unemployment benefit is no longer 65 years. If you were born between 1943 and 1954, your full retirement age is 66 years, and the age gradually increases each year of birth until it reaches 67 years for persons born in 1960 and later.

Even if it is the age to receive full benefit, you can choose to start taking social security sooner or later, which will affect the size of your benefits. You can receive unemployment benefits as early as you are 62 years old, but your monthly payments will be reduced by 25% to 30% of your full benefits, depending on the year you were born. Or you can defer receiving unemployment benefits until you turn 70, and your monthly payments will increase by 8% for each year you wait after your full retirement age. If your full retirement age is 66 and you wait until age 70 to start receiving benefits, your monthly benefits will be 132% of your full retirement benefit.

Useful: Everything you need to know about collecting social security while you are still working
Find out: What happens if you want to stop social security and go back to work?

The longer you live, the longer you get out front by delaying social security and receiving higher monthly benefits for life. You can use online benefit calculators at to see how much you would receive in multiple scenarios and your break-even age – how long you should live before your total payments arrive by waiting to receive benefits. But regardless of the math, some people have to take benefits early if they have no other money to pay their bills, or if they have health problems and do not expect to live long enough to benefit from waiting.

And some people consider another factor when deciding when to receive benefits: the financial health of the Social Security Trust Fund. According to the latest report from the Social Security Trustees, the Social Security Trust Fund, which holds money not needed this year to pay benefits, is scheduled to expire in 2034 if the government does not make any changes to the current system. The Boston College Center for Retirement Research has recently examined how various news headlines about the depletion of the Social Security Trust Fund could affect people’s decisions on claims. They found that people who read sensational headlines about the Social Security Trust Fund going bankrupt predicted that they would receive benefits about a year earlier, prompting them to lock in lower monthly benefits with no extra savings to fill out. the hole. But people who read headlines that explain the situation in more detail – explaining that ongoing social security taxes will still cover about three-quarters of the benefits, even after the trust fund has been exhausted – had a more realistic view of what to expect from social security.

“If the trust fund happens to run out, it does not mean that payments will stop,” said Tim Steffen, director of tax planning for Baird. “There will still be workers who pay taxes into the system, but those taxes will be paid back to the retirees. However, there would be a reduction in benefits, which the Social Security Trustees estimate will be around 24%. It is certainly a meaningful reduction, but they do not disappear. “

It is also unlikely that the government will not make any changes to help improve the trust fund’s financial health before then. “Congress will not just let the trust fund run dry,” Steffen said. “It may be last minute, and it’s likely to be a combination of tax increases and benefit cuts, but it will happen.”

What you can do

“For someone retiring now, I would say one should behave as if social security benefits remain in place ‘as they are’ because it would be so politically unpopular to cut down on someone within a few years after retirement that I think it is unlikely that our elected representatives would have the political capital to change it, “said Patrick Carney, a certified financial planner in Lancaster, Pennsylvania.” For someone who is further away from retirement, I’ll tell them to save up for retirement, just as social security will not be there for you, and if it is, you will be pleasantly surprised. “

What you can do at any age is save more on tax-favored accounts, such as a 401 (k) and a traditional or Roth IRA, which can help you compensate for any deficiencies in social security funds and provide an important supplement to your retirement income. . If your employer matches your 401 (k) contributions, take advantage of the full match – it’s free money.

Consider saving some money in a pre-tax 401 (k) for any age that grows tax deferred until retirement and does not reduce your home pay as much as you might expect because contributions are made before your income is taxed. But also save some money in a Roth 401 (k) or Roth IRA if you are eligible. To qualify for the 2021 Roth IRA Contribution, your adjusted gross income must be less than $ 208,000 if married jointly or less than $ 140,000 if single – see IRS Fact Sheet for details on income settlements. You have until April 15, 2022, to pay contributions for 2021. Roth contributions do not reduce your taxable income now, but you will be able to raise your earnings tax-free upon retirement – and stretch your savings so much further, no matter what happens with the tax rates in the future. You can also withdraw your contributions without tax or fines at any age, which can make a Roth IRA a non-cumbersome way to save if you worry that you might need to access some of that money sooner.

Either way, signing up for automatic contributions to your retirement savings can make it a priority in your budget and help you control the money you have available for retirement, no matter what happens to the Social Security system at that time.

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This article was originally published on Do you need to take social security early before it runs out?

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