Will changes to social security force you to delay retirement? | Personal finance

(Catherine Brock)

According to projections from the Social Security and Medicare Board of Trustees, Social Security has a shortage of funds coming up. If the projections prove accurate, the federal program is expected to reduce benefits by about 20% in the mid-1930s.

One proposed solution to avoid benefit cuts is to raise the full retirement age. FRA is the age at which you become eligible for the full social security benefit, with no advance application adjustments. Your FRA is between 66 and 67, depending on the year you were born.

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What an increase in FRA would mean

There are positive and negative results for an increase in FRA. In theory, the change should be largely positive if it protects social security recipients from immediate double-digit benefit cuts.

Image source: Getty Images.

The big drawback is potentially higher reductions for early request. This would be more problematic for workers who are forced to retire due to circumstances beyond their control.

Apply for Social Security early today

Here’s how it works today when you apply for Social Security in advance. Your entire benefit is reduced by a percentage for each month you receive benefits prior to your FRA. There are two percentages that apply:

  • Five ninth 1% for each of the first 36 months.
  • Five twelfths of 1% for each month over the age of 36.

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

If social security pushes the FRA to 68 and maintains the same early application rules, taking benefits at the age of 62 would result in a more marked reduction. Specifically, you should face a 35% benefit reduction. This reduces a full $ 1,500 monthly benefit to $ 975.

Accept a potentially higher FRA

The easiest way to accommodate a higher FRA is to postpone the retirement plan accordingly. Whether it’s a year or two, you would continue to work and contribute to your retirement savings. The benefit is that you have more time to improve your long-term creditworthiness.

The problem arises when you are unable to continue working. If you have to retire early due to deteriorating health or changes at work, you can take your social security as planned, but you will earn less thanks to the higher FRA.

Because it’s too early to worry

Now for the good news. The question of financing social security is theoretical, based on projections. Projections, by nature, are based on assumptions. This is why the official social security outlook changes from year to year. Previously, for example, funding shortages were predicted to hit in 2033. The 2022 report targets 2035 as the year’s benefits may be affected.

Furthermore, increasing FRA is an idea that may or may not gain ground. Over the next few years, lawmakers will no doubt discuss an increase in FRA alongside other proposals to improve the prospects for social security. Only time will tell which ideas, if any, will be implemented.

Protect yourself from changes in social security

Fortunately, as long as you are still working, you can isolate 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 that Social Security may implement.

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

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

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The Motley Fool has a disclosure policy.


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