Social Security Forecasts Are Getting Worse. Should You Claim Before It’s Too Late?

Social Security’s trust fund is running out of money. It’s still not a good reason to claim benefits early. (Justin Sullivan/Getty Images)

Social Security’s finances keep getting worse. But if you’re thinking of claiming benefits sooner, think twice. You may pay a steep price through years of retirement.

No doubt, the outlook for Social Security’s trust fund keeps deteriorating. In June, the Social Security Trustees projected that the retirement trust fund’s reserves would run out in 2033, about nine months sooner than last year’s forecast.

Republican tax policies may be making things worse. The party’s One Big Beautiful tax law, signed by President Donald Trump on July 4, accelerated the trust fund’s demise by about six months, according to the nonpartisan Committee for a Responsible Federal Budget, or CRFB. That’s because the law’s permanent extension of the 2017 tax rates and the new, temporary $6,000 senior deduction will reduce money flowing into the trust fund.

About half of seniors pay income taxes on a portion of their Social Security, and this revenue goes into the Social Security and Medicare trust funds. Provisions in the new tax law will reduce total taxation of benefits by roughly $30 billion per year, the CRFB estimates, making the trust fund run out of money that much sooner.

“It weakens the overall Social Security system,” says Maya MacGuineas, president of the CRFB. “It’s not doing anyone any favors in the long run, because you’re creating a greater problem with no plan to fix it.”

A Social Security spokesperson said in a statement that “the long-term financial health of these trust funds remains a top priority,” adding the administration will work collaboratively with all parties to safeguard the funds.

Only Congress can plug Social Security’s shortfall, by passing reforms that could increase taxes and reduce benefits for future generations. But even though the trust fund is projected to run dry in about seven years, lawmakers haven’t focused on a fix.

If they don’t act before the deadline, then Social Security recipients face an automatic benefit cut of about 24%, according to the CRFB—steeper than the 23% forecast by the program’s trustees.

What should preretirees do about this grimmer prognosis?

Tempting as it may be, don’t rush to claim out of fear that the program is going bankrupt. Even in the worst-case scenario, incoming payroll taxes will be sufficient to pay about three-quarters of promised benefits starting in 2032 or 2033, when the trust fund’s reserves could run out.

If you can afford it, waiting to claim puts more money in your pocket. For people born in 1960 and after, claiming at your earliest eligibility of 62 will permanently reduce your benefits by 30% compared with what you’d receive at your full retirement age of 67. Waiting until 70 will boost your benefit an additional 8% a year beyond that.

The projected depletion of the trust fund doesn’t change this math. Even if benefits are reduced, they’ll be cut from a higher benefit amount if you wait.

Granted, there are solid reasons to claim early. Older adults in poor health with a lower life expectancy would benefit from claiming benefits sooner, as could people who have adequate outside savings and want to enjoy their Social Security boost while they still have energy for travel and other activities.

Many analysts expect Congress to act by the deadline to plug the shortfall, so promised benefits should continue as scheduled for current recipients and those within at least 10 years of retirement. Any changes that Congress makes to benefits would probably be aimed at younger workers who have more time to plan.

If you’re within striking distance of retirement and a small chance of a benefit cut keeps you up at night, consider contingency planning. That could involve deciding which expenses to pare if your income is reduced, or postponing retirement to save more. Of course, that only goes so far for lower-income seniors, who have less wiggle room to cut spending.

Younger people face a different calculus. It’s more likely that you’ll experience benefit reductions as a result of fixes that lawmakers make. One partial fix involves raising the full retirement age from its current 67, which amounts to a de facto benefit cut.

For clients in their 40s and younger, advisor Keith Fenstad is planning for a one-third haircut to the amount that they’re projected to receive.

“It’s an added fudge factor,” says Fenstad, a Certified Financial Planner and director of wealth planning at Tanglewood Total Wealth Management in Houston. You can find your projected benefit by opening a mySocial Security account on the Social Security Administration website.

Note that none of these contingency plans involve claiming earlier than you would otherwise over fears about the program’s solvency. Instead, it’s about preparing your finances for whatever might come.

Write to Elizabeth O’Brien at elizabeth.obrien@barrons.com