Social Security serves as a critical source of income for millions of retired seniors. And that’s not necessarily a good thing. Those benefits will only replace about 40% of your pre-retirement income if you’re an average earner. But most seniors need about twice that much income to maintain a reasonably comfortable lifestyle.
That’s why it’s ideal to enter retirement with a decent chunk of savings. But if that’s not the boat you’re in, you should at least make a point to wait until your full retirement age (FRA) to claim Social Security, since that’s when you’re entitled to your full monthly benefit based on your earnings history. If you file for benefits before FRA, you might end up living a very cash-strapped existence.
Filing early could lead to a personal financial crisis
In a recent Allianz Life study, 33% of near-retirees said they plan to claim Social Security before reaching FRA. And going that route could mean winding up with a much lower monthly benefit for life.
The earliest age to sign up for Social Security is 62, so filing at that point is apt to result in an extreme hit to your benefits. Filing a year early won’t have the same drastic impact.
Either way, if you don’t have a lot of savings to bring into retirement, then you may want to rethink your plans to sign up for Social Security before FRA. If you shrink your benefits by claiming them early, you may not have enough money to pay your expenses or maintain a decent quality of life.
That’s not even accounting for Social Security cuts, which are very much on the table. In fact, those cuts could come about as early as 2035, since that’s when the program’s trust funds are expected to run dry, according to a recent estimate.
Imagine you slash your benefits by filing for Social Security early and then benefits get reduced broadly. All told, you could be looking at very minimal income to live on. And if your backup plan is to just start working on a part-time basis, take a step back and realize that may not end up being possible due to health or mobility issues or a lack of available jobs. (Granted, jobs are abundant right now, but we can’t be sure that will always be the case.)
That’s why it pays to reconsider your plans to file early if you don’t have a lot of savings and expect to be heavily reliant on Social Security once your career wraps up. Of course, if you have tons of savings, it’s a different story. There’s probably no need to stress out about a reduced Social Security benefit if you’re approaching retirement with a $4 million nest egg.
But if you expect Social Security to be a significant income source for you down the line, then you may want to push yourself to wait until FRA or even beyond to sign up. That way, you won’t slash a crucial income stream and be left to suffer the consequences for years on end.
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