Should I Withdraw Social Security Earlier in Case It Gets Cut?

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Toni DeBella, a 66-year-old American living in Italy, asks: “Since I’ve worked for myself most of my adult life and was a single mom, I’ve managed to save very little for retirement. Social security is my only hope. With the GOP making noise about cutting benefits, I’m freaking! Should I take my SS now (taking less per month than if I wait?) and dump it into a safe, interest bearing account?”

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DeBella’s question addresses both a financial issue, and a political one.

First, the politics: The short answer is that few experts expect Social Security benefits to be cut anytime soon.

However, recent calls from a handful of Republicans to slash the federal government’s biggest social safety net program are raising fears among some retirees and those looking to retire soon.

More than 65 million Americans are currently receiving Social Security benefits—roughly half of whom rely on it for 50% or more of their basic income during retirement years. A few Republicans have proposed cutting the program to reduce the federal deficit, and also as a potential bargaining tactic to extract concessions on spending cuts from the White House. President Joe Biden has highlighted for weeks that he is determined to block these efforts to cut Social Security, though concerns remain about the massive funding shortfalls facing the programs.

The basic problem facing Social Security is that people are now living longer, healthier lives than they did when the program was created—plus, Americans are paying less in taxes today. A federal report projected that Social Security will have to begin paying reduced benefits by 2034 because it is running out of money.

The Republican Study Committee, a quasi in-house think tank for the House GOP conference, unveiled a 2023 budget blueprint last year that would raise the Social Security eligibility age from 65 to 69 and link the retirement age to increases in life expectancy. Under the proposal—which has gained some Republican support—Americans would have to work longer before receiving full Social Security benefits. Discussion of raising the retirement age continued in the Senate this week, but experts say the program is in little jeopardy of cuts in the immediate future—and even if it is, changes would likely be gradually phased in or delayed to exempt people who are current beneficiaries or those who will become beneficiaries in the next decade.

On the financial question, there’s no one-size-fits-all approach for when to claim Social Security benefits, but financial advisors agree that waiting until at least age 70 to start drawing Social Security allows people to receive larger amounts. In 2023, the maximum payment for people at 67 years old is $3,627 per month, or $43,524 per year. For 70-year-olds, it is $4,555 per month, or $54,660 per year. That’s because Social Security retirement benefits increase by 8% for each year people delay starting their benefits beyond full retirement age, which currently ranges from 66 to 67, based on date of birth.

Kathleen Romig, director of Social Security and disability policy at the Center on Budget and Policy Priorities, says that a 66-year-old like DeBella should strongly consider waiting at least another year before claiming Social Security benefits—if she can—since her monthly benefit would be 8% higher for each additional year of delay after age 67. “You can certainly get a higher monthly benefit by waiting, but for some people it doesn’t make sense to wait,” Romig says.

For example, some households may need to claim Social Security early to pay down debt or fund caregiving services. Others may want to take that money early and invest it or put it in an interest-bearing account. But Romig notes that there’s a lot of variability in the markets and right now it’s hard to outperform the 8% per year rate of increase that people receive after reaching full retirement age. The bottom line is that it’s probably better for most people to wait to claim Social Security benefits—if you can, says Romig.

“We don’t know if next year is going to be a good or a bad year for the markets,” she says. “But we do know that if [DeBella] waited another year, she’s going to get almost an 8% bump in her monthly benefit, and if she waits two years it’ll be 16% and so on and so forth, compared to what she could get now. That’s nothing to sneeze at—getting a guaranteed higher monthly benefit just by waiting.”

Recent research from a group of economists suggests that all U.S. workers between age 45 and 62 would benefit from waiting until beyond age 65 to start receiving benefits, and more than 90% would benefit from waiting until age 70. But only about 10% of workers actually wait until then, according to estimates from a study published in the National Bureau of Economic Research. Claiming before the age of 70 results in an estimated median household loss of $182,370 in lifetime discretionary spending, the researchers found.

But financial circumstances differ person-to-person, so advisors recommend that people consider a number of factors before making a decision on when to claim Social Security benefits. Those factors include whether you’re still working, your life expectancy, whether you will still have health insurance, whether you’re eligible for benefits on someone else’s record, whether you have other income to support you if you decide to delay taking your benefits, and whether other family members qualify for benefits on your record.

“The beauty of Social Security is that you can claim it at a variety of different ages, and some choices are going to make more sense for different people,” Romig says. “But I wouldn’t expect major last minute changes to retirees or near retiree benefits, even if there are benefits cuts on the table. Those who are thinking about making immediate changes based on the conversation right now—I would definitely caution against that. There seems to be a commitment by congressional leadership to not cut Social Security benefits this year.”