Why Claiming Social Security Early Could Be More Popular Than Ever This Decade

Jan 7, 2020 / Amanda Chase, Horsesmouth Assistant Editor

Data from the SSA shows that a vast majority of Social Security beneficiaries (around 3 in 5) claim their payouts prior to turning 66. This means most retirees are knowingly accepting a permanent reduction in their monthly payout for life. And the crazy thing is, this trend of filing early for Social Security benefits could actually accelerate throughout the 2020s. If you’re wondering why beneficiaries would purposefully take their payouts early knowing full well that their benefits would be reduced for life, look no further than the annually released Trustees report. Since 1985, the Trustees report has cautioned that long-term revenue generation would be insufficient to cover program expenditures.

In the 2019 report, the Trustees estimated a $13.9 trillion cash shortfall between 2035 and 2093, with 2020 being the first year since 1982 where the program would spend more than it brought in. The report also projects that Social Security’s nearly $2.9 trillion in asset reserves (essentially, its aggregate net-cash surpluses since inception) would be completely exhausted by 2035. In layman's terms, this means lawmakers have 15 years or perhaps even less to resolve Social Security's funding shortfall. Although Social Security won't go bankrupt, a lack of asset reserves would force an across-the-board cut to benefits that, for retired workers, could total up to 23%.

The reason soon-to-be retirees might choose to take their payouts sooner than later is simple: They fear a 23% cut to their benefits and have little or no faith in a divided Congress to fix the issue at hand.

Although there are a handful of scenarios where an early Social Security claim can make a lot of sense, taking your payout early because you expect Congress to drop the ball probably isn’t one of them. To begin with, if we look back at Capitol Hill’s track record, it has come to the program’s rescue with bipartisan solutions before. Chances are that, despite the political divide that currently exists in Congress, lawmakers will work out a plan to resolve the program’s funding shortfall before 2035.

What’s more, waiting has been shown to be a statistically smarter move for most retirees. A report from United Income that examined around 2,000 senior households found that 70 was the optimal claiming age for a whopping 57% of seniors and more than 4 out of 5 would have benefited by waiting until at least age 67 before taking their payout. Comparatively, less than 7% of retirees would have made an optimal claiming decision by taking their payouts between ages 62 and 65.

You can find the full article at The Motley Fool.


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