Fears about Social Security's future funding shouldn't prompt you to claim benefits early

• The funds Social Security relies on to pay retirement, survivor and disability benefits face sooner depletion dates, according to a new report.
• While those combined funds will only be able to pay full benefits for the next 12 years, that should not prompt you to start monthly retirement checks early, experts say.
• Instead, base your claiming decision on your longevity, employment status, financial need and marital status.

VALERIE MACON | AFP | Getty Images

Social Security will be able to pay full benefits for just another 12 years, according to new estimates released this week.

Experts, however. say that does not mean you should dramatically change your Social Security claiming strategy.

Each year, the Social Security Administration releases an annual trustees report regarding the status of the program. This year's report was the first to show the effects the Covid-19 pandemic has had on the program's funds, which were already running low.

The estimated dates for when those funds will stop being able to pay full benefits has been moved up. Now, the combined funds used to pay retirement, survivors and disability benefits will be able to continue to make full payments until 2034 — one year earlier than was projected last year.

Importantly, the program will still be able to pay 78% of benefits at that time.

How dire the program's situation is depends upon whom you ask. But both optimistic and pessimistic experts see reason for hope with regard to the continued availability of benefits.

One reason for optimism is that lawmakers have traditionally stepped in to balance spending and revenues.

"Beneficiaries can be assured that pattern will continue," Paul N. Van De Water, senior fellow at the Center on Budget and Policy Priorities, wrote this week.

However, Larry Kotlikoff, an economics professor at Boston University and president of Economic Security Planning, has a more bleak outlook on the program's current status.

"This is a point in time when we need to have radical, fundamental fiscal reform, take the entire fiscal system and redesign it so that we get enough revenue so we don't impoverish our kids," Kotlikoff said.

For most Americans, the big question is: What does this mean for my benefits?

Those who are anxious may be tempted to claim retirement benefits when they first become eligible at age 62.

But by starting monthly checks that soon, beneficiaries take a 25% to 30% reduction on their monthly checks depending on their full retirement age, said Scott Thoma, investment strategist at Edward Jones.

Should people rush off to take their Social Security benefits right away? No.

Larry Kotlikoff

economics professor at Boston University and president of Economic Security Planning

"Don't file early just because you have concerns about the program 12 years from now," Thoma said. "You should always be making a filing decision based upon your own personal financial situation and your own needs.

"Don't make it a political decision," he said.

Despite a pessimistic outlook for the program, Kotlikoff also said people need to approach their claiming decisions with caution.

"Should people rush off to take their Social Security benefits right away? No," Kotlikoff said.

Because benefit cuts would be politically unpopular, changes like payroll tax increases would be more likely, Kotlikoff predicts. Even if there were a 25% reduction in benefits 10 years from now, people would still come out ahead if they wait.

Other considerations regarding your personal situation should take a higher priority, Thoma said.

Key areas to think about are your life expectancy, your ability to continue working, how much you need the money and how your claiming decision will affect your spouse.