Social Security fear is pushing some retirees to claim early

A reader planning to claim Social Security early has put a hot retirement question back on the table: take the money now, or wait for a bigger monthly check and hope Congress fixes the system.

In a MarketWatch Moneyist column, Quentin Fottrell responded to a reader who argued that the usual math around claiming age misses a major risk: the political and financial uncertainty hanging over Social Security.

The reader, writing under the name “Social Security Soothsayer,” described Social Security as a form of insurance against outliving one’s money. Waiting to claim can raise monthly benefits for life, but the reader said that calculation changes if future benefits are reduced.

Fottrell’s answer was blunt: the reader may be making a reasonable personal bet, but fear of future cuts is not the same as hard evidence that claiming early is the better move.

The early-claim case

The reader pointed to proposals that have drawn public attention, including an American Enterprise Institute proposal involving a benefit cap of about $2,050 a month and a Cato Institute proposal for a universal benefit of about $1,800 a month.

Those ideas are not current law. The reader said such proposals would mainly hit people receiving higher benefits, while lower-benefit recipients would be less affected.

Fottrell said anyone who is convinced that Congress will fail to act and that benefits will be reduced may decide to claim now rather than wait six or eight years. He framed that as a personal calculation, not a universal rule.

He also noted the trade-off. Claiming early can permanently cut a monthly benefit by as much as 30%, while waiting between ages 67 and 70 can add 8% for each year delayed, according to the column.

Fottrell said the better basis for a decision is a person’s health, cash needs and retirement plans. He also cited the possibility that benefits could be reduced by an estimated 24% as soon as 2032 if lawmakers do not address a funding shortfall.

Means testing enters the chat

The column cited Mark J. Warshawsky, a senior fellow and chair of healthcare and retirement policy at the American Enterprise Institute, who examined possible responses if the Social Security Trust Fund is exhausted in roughly the next six years without congressional action.

Warshawsky argued that means testing would be fairer than across-the-board benefit cuts or a monthly benefit cap, according to Fottrell.

His paper looked at eliminating benefits for people over 62 with net worth above $2 million, along with a gradual benefit reduction above that level. The analysis found a $2 million threshold would cut program costs by about 13.6%, while a gradual phase-out would save 11.8%.

Neither approach would fully close the projected funding gap, the column said. Warshawsky’s analysis found the threshold would need to fall to about $1.1 million to $1.2 million, affecting nearly one-quarter of beneficiaries.

Americans like Social Security, and worry about it

Fottrell also cited a Cato Institute survey of 2,000 Americans from last year. The survey found 83% had a favorable view of Social Security, with support across Democrats, Republicans and independents.

The survey found 82% of workers expect Social Security to provide at least part of their retirement income and see it as a retirement savings program rather than welfare.

At the same time, respondents were gloomy about its future. Many said younger workers would get a worse deal than current retirees and said Congress had not managed the system well, according to the column.

The survey found broad support for an independent bipartisan commission to develop solutions, with 71% backing that idea. Respondents were more open to modest changes, such as temporary benefit freezes or slower cost-of-living adjustments, than larger moves such as broad benefit cuts, raising the retirement age or means testing.

Fottrell also addressed another early-claim argument: taking benefits at 62 and investing the checks. He wrote that a $1,600 monthly benefit invested at a 7% annual return could grow to more than $80,000 by age 67, and at 10% could top $100,000. Market performance and lifespan, he warned, are not guaranteed.

This story draws on original reporting from MarketWatch.