Americans working toward retirement are steadfastly focused on maximizing the income that will support their post‑career lives.
After years of reporting on retirement and other personal finance issues, I’ve seen how consistently people look for sound advice from those they feel they can trust. They want enough financial security to maintain stability, meet rising costs, and pursue long‑planned goals they set for after they stop working.
That’s why attention inevitably turns to Social Security, a cornerstone of retirement planning.
Personal finance author and former NBC “Today” Show financial editor Jean Chatzky — and the Social Security Administration (SSA) — emphasize key facts that Americans should not overlook, particularly around the decision of when to begin claiming benefits.
Chatzky sounds an alarm about the downside of collecting early for those who do not need to.
“Claiming Social Security at 62 instead of 70 could mean locking in a permanent 30% cut to your monthly benefits for life,” she wrote on LinkedIn. “Yes, really.”
A couple of major factors emerge when understanding why people often choose to collect Social Security benefits early.
One involves fear about the federal program’s solvency. A second is people’s understandable desire to leave the workforce and collect monthly Social Security payments as soon as they are available.
Jean Chatzky explains Social Security financial challenge
A recent analysis indicates that the Social Security system’s finances will begin to face shortfalls in 2033 if lawmakers take no action to strengthen the program, according to the Congressional Budget Office.
That projection does not mean benefits would suddenly stop.
Social Security is supported by several distinct funding streams, and only one of them — the reserve fund — is projected to be depleted on that timeline. The other components of the program would continue to generate revenue and pay benefits, though at reduced levels if no policy changes are made.
“Should that happen, the country would still be able to pay about 80 percent of its Social Security obligations,” wrote Chatzky for AARP, the nonpartisan advocacy group for Americans over 50.
And many financial professionals believe the probability that no legislative action will be taken to protect Social Security finances is small. Sometimes urgency requires a stress point that triggers Congress to act.
“In 1982, the reserve account went dry and only then did Congress bother to do anything,” said Social Security expert Marcia Mantell, according to Chatzky. “That’s the nature of the political machine.”
SSA outlines options for Congress on Social Security solvency
Lawmakers have a wide range of potential policy adjustments that could help narrow or fully address the program’s long‑term funding gap. These include:
- Annual reductions and other changes to the annual Cost of Living Adjustment (COLA). (Source:SSA)
- Modifications to the level of monthly Social Security benefits. (Source:SSA)
- Methodically increasing the retirement age for Social Security eligibility over time. (Source: SSA)
- Making adjustments to family member Social Security benefits. (Source:SSA)
- Increasing the payroll tax rate for Social Security. (Source:SSA)
“Taking action sooner rather than later will allow consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare,” wrote the Social Security Administration.
Jean Chatzky recommends waiting to collect Social Security
Chatzky emphasizes that choosing when to claim Social Security should be approached with steady, well‑reasoned judgment rather than emotion, according to an AARP video.
“The numbers of people filing for Social Security earlier have gone up because there is a lot of fear and uncertainty, but you need to be very careful before you do this,” Chatzky said.
“I would caution you to try to wait because for every year you wait to claim your benefits from age 62 to age 70, you typically get a bump in those benefits of about 8% a year,” Chatzky added. “That’s a return that’s difficult to beat in any other way.”
More on personal finance:
- AARP raises red flag on major 401(k) problem
- Redfin predicts key housing market shift for homebuyers
- Fidelity sounds alarm on 401(k)s, IRAs, Social Security
Chatzky acknowledges that this decision is important and that it involves ramifications that will last into the future.
“You should be asking yourself whether you actually need this money right now or whether you can allow your benefit to continue to grow,” she said.
Shutterstock
SSA highlights options for when to receive Social Security
Timing plays a significant role in determining monthly benefits.
According to an SSA reduction schedule, a worker whose full retirement age is 67 would receive about 70% of their full benefit if they claim at 62, the full 100% at 67, and roughly 124% at 70 thanks to delayed‑retirement credits, according to an SSA chart.
- A person turning 62 in 2024 with a full retirement age of 67 would see their $2,000 full‑benefit amount reduced to $1,400 if they claim at age 62.
- This 30% reduction reflects the longer period over which benefits are paid and is generally permanent.
- Delaying benefits until age 70 would raise the monthly amount to $2,480 through delayed‑retirement credits.
- The age‑70 benefit in this scenario is about 77% higher than the amount received at age 62, a difference of $1,080 per month.
(Source: SSA)
Related: Dave Ramsey, Charles Schwab raise red flag on IRAs, Roth IRAs
