Ask Rusty: Should I Claim SS Early Because it’s Going Bankrupt?

Dear Rusty: My best friend is going to be age 62 and wants to begin taking her Social Security (SS) immediately. Her reasoning not to wait is the thought that it is going to run out in 10 years, so she wants as much of her money before that happens. I have paid into Social Security my entire working life (44 years and counting). What are your thoughts on taking it as soon as you are eligible? Signed: Uncertain what to do Dear Uncertain: Deciding when to claim Social Security is a sometimes-confusing task, but no one should ever claim SS early because they believe Social Security will go bankrupt in the near future. Social Security cannot and will not go bankrupt. What your friend may be referring to is the fact that Social Security will be facing some financial issues in 2033 unless Congress acts soon to reform the program. And Congress will act, but likely not until it must. The fact is, Social Security still has about $2.7 trillion in reserved funds, which are now being used to pay full benefits. If that reserves balance were to be fully depleted, then Social Security would need to go to a “cash basis” (essentially, paying out in benefits only what is received in SS taxes), which would result in about a 21 percent cut in everyone’s benefit. In other words, even if Congress neglected to reform the program, beneficiaries would still receive about 79 percent of their monthly benefit starting in about 2033/2034. Hardly anyone believes that Congress will fail to eventually reform Social Security, and, in fact, it already knows how to do that reform (it just currently lacks the bipartisanship to accomplish it). But neglecting reform would amount to political suicide for all members of Congress, which is extremely unlikely to happen. Here at the AMAC Foundation, we are confident that Congress will soon address Social Security’s future financial dilemma, and we have been working on potential solutions. We have, for several years, been providing these suggestions to various members of Congress, and those members are now considering our proposals. Thus, we do not suggest making a Social Security claiming decision based on fear of the program going bankrupt. That fear is unfounded. Instead, we suggest that everyone decide when to claim based upon their individual personal situation, considering their need for the SS money, their life expectancy, and their marital status. And remember, claiming early (before one’s SS full retirement age (FRA) also means Social Security’s Annual Earnings Test (AET) will apply. The AET limits how much can be earned from working before FRA is attained. So, our thought on the wisdom of taking Social Security as soon as you are eligible is that it is often not a wise decision, and certainly not if that decision is made based on fear of Social Security “not being there” soon. Instead, we suggest making your Social Security claiming decision based upon your unique personal circumstances, including, especially, your life expectancy, financial need, and marital status.           

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Russell Gloor is a national Social Security advisor at the AMAC Foundation, the nonprofit arm of the Association of Mature American Citizens (AMAC). The 2.4-million-member AMAC says it is a senior advocacy organization. Send your questions to: ssadvisor@amacfoundation.org Author’s note: This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained, and accredited by the National Social Security Association (NSSA). The NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration (SSA) or any other governmental entity.