Social Security Cuts May Be Coming. Here’s the Claiming Strategy to Ease the Blow

For years, Americans have heard warnings that Social Security is facing major funding problems. Now, as projections continue to show that the program’s long-term finances are precarious at best, many people may be growing increasingly anxious about what potential benefit cuts could mean for their retirement plans.

The good news is that lawmakers are expected to take action before automatic cuts occur. The bad news is that they may not be able to prevent benefit cuts completely.

If you’re worried about the impact of reduced Social Security benefits on your retirement, you should know that the right filing strategy might soften that blow. Here’s what you should do if you’re convinced Social Security cuts are inevitable.

Delaying Social Security could be a smart bet

According to the Social Security Trustees, Social Security may have to start cutting benefits in 2033 due to a funding shortfall. The Congressional Budget Office has potential benefit cuts happening one year earlier.

That’s enough to make anyone anxious. But if you’re behind on retirement savings and expect to rely heavily on Social Security for income once you stop working, the idea of program cuts may be downright terrifying.

That’s why it’s so important to claim your benefits strategically. The right filing strategy could help make up for widespread Social Security cuts.

You’re allowed to claim Social Security at any point in time once you turn 62. And you’ll get your monthly benefits based on your wage history without a reduction if you wait until full retirement age (FRA) to file. That age is 67 if you were born in 1960 or any year after.

But if you delay your Social Security claim past FRA, your monthly benefits will increase 8% for each year you wait, up until you turn 70. That means with an FRA of 67, you could be looking at a 24% boost to your monthly benefits.

Meanwhile, last year, the Social Security Trustees warned that benefits could be looking at a 23% cut in 2033. But if you’re able to file at 70 and boost your checks by 24%, you could end up in roughly the same position you’d be in by claiming benefits at FRA.

A later claim can help, but there’s more you can do

Of course, claiming Social Security at 70 isn’t necessarily as easy as it sounds. To hold off on benefits that long, you may have to work that long. That could be difficult if you do physical work or if changes in your industry make it difficult to stay employed.

But all told, if you’re worried about the impact of broad benefit cuts, you may want to plan on delaying Social Security until you turn 70. You should also make every effort to save for retirement, even if you’re only able to contribute modestly to an IRA or 401(k).

Over the course of many years, small contributions could add up, especially if you invest that money and let your portfolio do a lot of the work. And if you have savings to tap to supplement your Social Security checks, that, too, could help ease the pain of benefit cuts should they come to be.