When Should I Collect Social Security?
For years, the Social Security Board of Trustees has warned against a projected shortfall that, if unaddressed by Congress, would require the program to reduce benefits to recipients. In 2010, the board estimated a 22% cut in benefits after 2037; today, it predicts a 23% reduction after 2034—little more than a decade away.
So, just how worried should future retirees be—and is it cause to rethink when to start collecting benefits?
"Despite the sensational headlines, Social Security isn't going anywhere," says Mike Townsend, managing director of legislative and regulatory affairs at Schwab. "The program currently brings in less than it pays out, and at some point its reserves could be exhausted—but that's only if Congress fails to act, which seems unlikely."
The most obvious solutions include raising the retirement age or increasing the payroll tax rate, both of which have been implemented in the past to address similar insolvency concerns. By some estimates, raising the payroll tax just 3.24 percentage points to 15.64%—the cost of which is split evenly between employer and employee—would allow the program to remain fully solvent for another 75 years.1 However, some solutions are likely to be unpopular with Congress members and voters alike. "It's going to be a protracted negotiation, so we may not see any changes from Congress until the eleventh hour," Mike says.
Whatever the outcome, you shouldn't collect benefits earlier than planned unless your situation changes, such as a decline in your health. That's because collecting before your full retirement age (FRA)—between ages 66 and 67, depending on your birth year—means locking in a lower benefit for life. For each year you delay beyond your FRA, up to age 70, you'll receive an 8% increase, which benefits not only you but potentially a surviving spouse.
"Social Security is a form of income insurance," says Rob Williams, managing director of financial planning, retirement income, and wealth management at the Schwab Center for Financial Research. "Payments are promised for life—with annual cost-of-living adjustments that are attractive and often unmatched in other income products—so you want to do everything you can to maximize its potential."
1The 2022 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, ssa.gov, 06/02/2022, www.ssa.gov/oact/tr/2022/tr2022.pdf.