When to file..?
Last week was another good one for stocks, part of a streak of nine positive days that ended when the market closed in the red yesterday. We haven’t seen a nine-day winning streak in about 20 years. We’re not out of the woods yet but it’s wonderful to see positive returns after all the volatility lately.
That said, let’s review some news about Social Security anxiety. Maybe it’s caused by headlines and mixed messages about fraud and waste, personal data security, or simply the health of the system. Whatever the reasons, people nearing retirement and those receiving benefits are understandably nervous about this important income stream.
Apparently this anxiety led to a large bump in March of people filing for their benefits compared to a year ago. I understand the “bird in the hand” idiom but I hope people who file earlier than planned understand what they’re doing.
Most know that waiting to start their Social Security benefits makes good financial sense. People have heard from experts (and from me) for years about how waiting locks in higher benefit payments for life. They’ve heard how one typically only needs to live to 80 or so before breaking even on waiting. Social Security benefits keep growing until age 70, so that’s the ultimate goal here. However, most people file well before then, either at their Full Retirement Age of 67 (typically) or earlier starting at age 62. This latter group willingly accepts a monthly benefit that gets incrementally smaller the earlier they start receiving payments, perhaps as much as 30% smaller for life.
Besides recent headlines, what are some reasons to start your benefits early?
- You need to stop working earlier than planned, haven’t saved enough, and your work prospects are slim. In short, you need the money. If so, take it but hopefully you’ve weighed all of your options with a financial planner, tax person, or perhaps a knowledgeable family member.
- You’re in poor health and don’t think you’ll make it past 80 (as a round number – your breakeven age may be different).
- You’re single. Starting your benefits early could impact what your spouse ultimately receives.
Maybe all three reasons fit your situation. If so, you should still talk it over with someone but filing early is probably appropriate.
Granted, there are multiple ways to think about this and one could (and some do) argue that my viewpoint is overly clinical and focused too much on dollars and cents. If Social Security could blow up any day one might as well enjoy the money now, and so forth. While I don’t have a crystal ball and can’t guarantee that anything will or won’t happen, I can suggest that it’s unlikely the system will implode during our lifetime. The quote attributed to President Trump below is one of many – they don’t call Social Security a third rail of Americans politics for nothing.
The following article excerpts from the Wall Street Journal discuss the recent Social Security filing numbers. A link to the full article is below.
Americans anxious about the future of Social Security are claiming their benefits earlier than planned, even though it can mean less income over the rest of their lives.
The Social Security Administration has been shedding staff and changing requirements for claiming benefits over the phone. President Trump has been pushing to cut government spending, though he has vowed not to reduce benefits.
Pending Social Security claims for retirement, survivor and health insurance benefits totaled 580,887 in March, up from 500,527 a year earlier. While multiple factors likely contributed to the increase, agency officials said at a March 28 meeting that “fearmongering has driven people to claim benefits earlier.”
Many effects of the Trump administration’s swift and sweeping changes to federal agencies aren’t yet apparent, but with Social Security, they are already changing households’ financial decisions. Americans have long been anxious about Social Security’s stability, and Trump’s second term is heightening those anxieties.
“That is leading people to make decisions based on fear,” said Kathleen Romig, director of Social Security and disability policy at the Center on Budget and Policy Priorities.
Economists and financial advisers generally discourage claiming early. Benefits increase with each month someone waits to take them beyond the minimum claiming age of 62. The increases stop at age 70.
Benefits starting at 70 are 76% higher than at 62, according to Laurence Kotlikoff, a Boston University economist and founder of Maximize My Social Security. A person who postpones benefits until 70 instead of 62 would come out ahead if they live to at least 80, he said.
Liz Huston, a White House spokeswoman, cited other causes for the increase in claims in March, including aging baby boomers claiming benefits and a new law that raises benefits for some government retirees.
She said: “There is no confusion. President Trump has been extremely clear: he promised to protect and strengthen Social Security.”
Calls to the agency since the beginning of October are up 19% compared with the same period a year earlier, officials said at the meeting. Website traffic and field office calls are higher as well, they said.
Recent surveys reflect the concern. More than 75% of U.S. adults worry a great deal or a fair amount about Social Security, a 13-year high, according to a March Gallup poll. Democrats expressed greater concern than Republicans.
When Social Security’s finances are referenced negatively in the news, workers tend to report a desire to claim benefits earlier, according to a 2021 study by the Center for Retirement Research at Boston College.
Social Security’s finances have long been under pressure because of the aging of the population. Unless Congress shores up the retirement program, it is projected to deplete its reserves in 2033, which would trigger a 21% reduction in benefits.
Social Security officials said at the meeting that many Americans are visiting field offices for help accessing their accounts on the agency’s website. Some are paying the agency $100 for certified copies of their earnings records, on which benefits are based.
A Social Security official said at the meeting that personal data is secure and the agency has backups. He acknowledged two website outages in March that he said were brief.
Retirees also take Social Security sooner than expected for reasons including deteriorating health and job losses. About a quarter of people filed for benefits when they turned the minimum claiming age of 62 in 2023, the most recent data available.
Here’s a link to the full article.
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