Don’t let this common fear of Social Security cause you to apply for benefits at the wrong time

Mall fear that once they retire, Social Security will not have the means to pay them the benefits they hoped to obtain. This fear is not exactly unfounded.

Earlier this year, program administrators reported that Social Security trust funds are expected to run out by 2034. Once this happens, the program may be forced to implement benefit reductions at all levels.

Many people, however, are blowing this out of proportion news. Are benefit cuts a bad thing for current and future retirees? Absoutely. But is Social Security looking to run out of money completely? Absolutely not.

Image source: Getty Images.

The main source of income for social security is the money it collects in the form of payroll taxes. Since there are no plans to eliminate payroll taxes, there is no reason to believe that the program will not be permanently funded.

Yet inevitably, many people will rush to apply for Social Security as soon as possible out of fear – fear that if they don’t budge, they will lose their benefits altogether. And it’s a movement that could really backfire on us.

Can you afford to reduce your own benefits?

The benefit cuts Social Security might have to implement after its trust funds run out of money are cuts you might not be able to avoid. But one kind of advantage cut you off can avoid is the one that results from the request for social security before full retirement age, or FRA.

FRA starts at 66, 67 or somewhere in between, depending on your year of birth. But you can register for Social Security from 62 years old.

If you go this route, you will reduce your benefits by 25-30%, depending on your FRA. And this reduction will generally remain in effect on a permanent basis.

If you start to retire with a large amount of money in a IRA or 401 (k) plan, you may be able to manage an impact on your Social Security income. But if you expect these benefits to be your main source of income for your senior years, then claiming them before FRA is a decision you might bitterly regret.

It is also a measure that will not improve your situation if cuts in universal benefits are implemented. Suppose this happens and Social Security is only able to pay about 80% of the expected benefits. This 20% reduction is bad enough. But if you apply for benefits earlier, you’ll face an even more substantial reduction – a reduction that could really lead to a cash-strapped existence in retirement.

Don’t give up on Social Security

There is no denying that cuts in Social Security benefits are on the table. But it’s not nearly the same as the complete disappearance of the benefits. The latter just isn’t something that should happen, so don’t buy the rumors that it does.

And don’t let your fear of benefit cuts lead you to apply for benefits too early in life. If you do, you might bitterly regret that decision for the rest of your retirement.

In fact, if benefit cuts do occur, you may want to compensate by delaying your Social Security declaration beyond the FRA. For each year that you do so, up to age 70, you can increase your benefits by 8%, for life.

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