There’s been a striking rise in the number of Americans applying for initial Social Security benefits this year, many earlier than planned.
Job losses, rising costs, and even staffing cuts at the Social Security Administration seem to be the triggers prompting more people to claim their benefits.
To help clients make the choice that’s best for them, financial advisers are stepping in.
“In my planning with clients, I try to keep emotion, political posturing, and media hype out of the conversation and utilize software and resources to educate our folks as to how Social Security works,” Danielle Howard, a certified financial planner with Wealth By Design in Glenwood Springs, Colo., told Yahoo Finance.
To recap: You can start receiving your Social Security retirement benefits at age 62. However, you’re entitled to full benefits only when you reach your full retirement age, or FRA. For example, if you turn 62 in 2025, your benefit would be roughly 30% lower than it would be at your full retirement age of 67.
If you delay benefits from your FRA until age 70, you earn delayed retirement credits. Those come to roughly an 8% increase for each year until you hit 70, when the credits stop accruing.
Most people, however, claim earlier, according to the SSA data. Nearly 30% of new Social Security beneficiaries claim benefits at age 62. Around 32% claim benefits after age 62 but before their FRA.
There is no escaping the fear — real or not — people have of potentially losing their benefits.
“We are hearing anecdotally that more people are claiming Social Security benefits earlier than they had planned because they are concerned Donald Trump and Elon Musk are taking that away,” Nancy Altman, the president of Social Security Works, a group that advocates against cuts to the program, told Yahoo Finance.
“This is very unfortunate because it is best to delay claiming as long as possible if you can, so that you get larger monthly checks for the rest of your life.”
It’s a decision most folks sweat over.
About 3 in 5 workers and more than 4 in 5 retirees have thought about how the age at which they claim Social Security can impact the amount they receive, according to a new report from the nonpartisan Employee Benefit Research Institute (EBRI).
Social Security being reduced or ceasing to exist in the future tops the list of retirees’ greatest retirement fears, according to a recent Transamerica Center for Retirement Studies report.
They aren’t wrong to worry, even without the DOGE cuts.
The 2024 Social Security and Medicare Trustees Report predicts that the combined retirement and disability trust fund reserves will go broke in 2035. There will still be money to pay benefits at that stage, but without a fix, beneficiaries could see a 17% cut in benefits.
That will sting. Most retirees rely on Social Security as their primary source of income.
For many retirees or near retirees whom I talked to this week, worries about Social Security’s projected funding shortfalls and the program’s ability to pay future benefits are top of mind.
Some experienced a job loss this year and are stepping into retirement involuntarily because landing a new job just keeps getting harder.
The April jobs report revealed that the median duration of unemployment continued to rise, even amid otherwise strong hiring, noted Cory Stahle, Indeed Hiring Lab economist.
“The share of workers who were long-term unemployed (out of work for 27 weeks or more) rose to 23.5% in April, the highest share in three years,” he said.
Fears of inflation and shaky stock markets also have Americans in their 60s feeling vulnerable.
Many people I spoke to struggling with the decision to apply for benefits said they’re leaning toward doing so soon because they want a steady source of income that adjusts each year to keep pace with inflation.
As the youngest baby boomers enter retirement and the share of retiree households increases, there is growing concern about their financial health — and claiming early can exacerbate that problem, according to a recent analysis from Georgetown University’s Center for Retirement Initiatives.
“Social Security claiming is amongst the most important financial decisions that older households make and can determine not only the income that individuals receive from Social Security but can also potentially influence financial well-being in the years following initial claiming,” according to the authors.
Financial planners are in the thick of helping anxious people make the best Social Security claiming decision. (Getty Creative) ·Deepak Sethi via Getty Images
Many financial advisers are donning a therapist cap to counteract client concerns.
“We look at optimizing Social Security as one of their ‘buckets’ to tap into for cash flow,” Howard said. “It is important that they understand that Social Security is a hedge against longevity as they can’t outlive it.”
It is different for each person based on their circumstances, she added, “but the majority of our planning clients have several buckets of financial assets, and we push Social Security off until 70.”
Other planners are in the thick of helping anxious people make the best decision. “They’re worried they won’t live that long, and want to enjoy the money now. They’re worried that benefits will be cut if they postpone taking it,” Alvin Carlos, a certified financial planner and financial adviser at District Capital Management in Washington, D.C., said.
“For those who can afford to wait, I still think delaying is often the better choice, but I understand the anxiety, especially with all the headlines,” he said.
How long we’re going to live is the great unknown, of course.
In case you’re wondering, a 65-year-old man is expected to live about 19 more years, and a 65-year-old woman is expected to live about 22 more years.
Understanding average life expectancy can help run the numbers to determine whether you really need to turn on Social Security benefits as soon as you can or whether waiting for a bigger check is worth it.
Case in point: A friend of mine recently told me that her husband has opted to turn on Social Security at age 62.
He reasoned that he doesn’t expect a long life. His parents only lived into their mid-70s, and he’d rather stop working now, collect his checks, and focus on his art projects.
