Will Social Security Changes Force You to Delay Retirement?

According to projections from the Social Security and Medicare Boards of Trustees, Social Security has a funding shortfall brewing. If the projections prove accurate, the federal program would have to lower benefits by about 20% in the mid-2030s.

One proposed solution to avoid benefit cutbacks is an increase to full retirement age. FRA is the age you become eligible for your full Social Security benefit, without adjustments for claiming early. Your FRA is between 66 and 67, depending on what year you were born.

What an FRA increase would mean

There are positive and negative outcomes to an FRA increase. In theory, the change should be largely positive if it protects Social Security recipients from immediate, double-digit benefit cuts.

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The big downside is potentially higher reductions for claiming early. That would be most problematic for workers who are forced into retirement for circumstances outside their control.

Claiming Social Security early today

Here’s how it works today when you claim Social Security early. Your full benefit is reduced by a percentage for each month you receive benefits before your FRA. There are two percentages that apply:

Five-ninths 1% for each of the first 36 months.
Five-twelfths of 1% for each month beyond 36.

The highest FRA today is 67. If you claim as early as possible at 62, that’s a 60-month acceleration. Your benefit in that case is reduced by 30% — 20% for the first 36 months and 10% for the other 24 months.

If Social Security pushes FRA out to 68 and keeps the same early claiming rules, taking benefits at age 62 would come with a steeper reduction. Specifically, you’d face a 35% benefit cut. That reduces a full benefit of $1,500 monthly to $975.

Accommodating a potentially higher FRA

The simplest way to accommodate a higher FRA is to postpone your retirement plan accordingly. Whether it’s a year or two, you’d keep working and contributing to your retirement savings. The upside is that you have more time to improve your long-term solvency.

The trouble arises when you don’t have the option to keep working. If you must retire early because of declining health or changes at work, you may take your Social Security as planned, but you’ll earn less thanks to that higher FRA.

Why it’s too early to worry

Now for some good news. Social Security’s funding issue is theoretical, based on projections. Projections, by nature, are reliant on assumptions. That’s why the official Social Security outlook changes from year to year. Previously, the funding shortfall was projected to hit in 2033, for example. The 2022 report targets 2035 as the year benefits could be affected.

As well, increasing the FRA is an idea that may or may not gain traction. Over the next several years, lawmakers will undoubtedly debate an FRA increase alongside other proposals to improve Social Security’s outlook. Only time will tell which ideas, if any, get implemented.

Protecting yourself from Social Security changes

Fortunately, as long as you’re still working, you can insulate yourself from the uncertainty surrounding Social Security. Focus on what you can control — building your savings and strengthening your finances. With time and discipline, you can increase your net worth to offset any negative changes Social Security might implement.

Another, less direct strategy is to manage your personal and professional life so you can continue working. There are two components. One, get healthy. Eat your fruits and veggies and stay active. And two, make yourself invaluable at work. Stay motivated, keep your skills current, and look for opportunities to take on more responsibility.

If you reach 65 with ample savings, good health, and a solid career outlook, any changes to Social Security should be mostly irrelevant.

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