Should You File for Social Security Now Before Cuts Hit? The Answer May Surprise You

If you're looking to check up on your retirement readiness, one of the most important things you can do is figure out what monthly Social Security benefit you're eligible for. And the best way to do that is to create an account at SSA.gov and review your most recent earnings statement.

That statement should include an estimate of your monthly Social Security benefit at full retirement age (FRA), which is when you're entitled to those monthly checks without a reduction. It should also show you how much your monthly benefits will be reduced if you file early and how much your checks might increase if you delay your claim past FRA. But the numbers you see on screen could change if Social Security is forced to reduce benefits across the board.

You may be inclined to file for benefits early, given the potential for Social Security cuts, but that decision could come back to bite you.

Social Security benefits could be in line for a 22% cut

The Social Security Board of Trustees recently released an update on the program's finances, and it wasn't exactly a positive one. Social Security's Old-Age and Survivors Insurance Trust Fund is expected to be depleted by 2032. Once that happens, future payroll tax revenue may only be able to cover 78% of benefits.

Lawmakers have different options at their disposal to prevent Social Security cuts. But if they don't act soon, in six years, Social Security recipients could see their benefits reduced by 22%.

Getting ahead of Social Security cuts could backfire

Given Social Security's financial crisis, you may be rethinking your filing strategy. Once you're 62 years old, you can sign up for Social Security. But if you were born in 1960 or later, FRA doesn't arrive until age 67.

Filing for benefits at age 62 instead of 67 will reduce your monthly benefits by 30%, but you'll at least get that money sooner. And you may be thinking it makes sense to claim Social Security as early as possible to get ahead of benefit cuts. But one thing you should realize is that filing early could leave you with even less money if Social Security cuts come to be.

Think about it this way. If you're entitled to $2,000 a month in Social Security at age 67, filing for benefits at age 62 will give you $1,400 a month instead.

If benefits are reduced by 22%, a $2,000 monthly Social Security check becomes $1,560. But if you're only starting out with $1,400 a month, a 22% reduction leaves you with just $1,092. That's a difference of about $5,600 per year, which could sting financially in retirement if you don't have a lot of savings or income outside of Social Security to rely on.

Benefit cuts aren't a given

Another problem with claiming Social Security ahead of FRA to get ahead of benefit cuts? Those cuts are not guaranteed to happen.

Social Security has faced financial problems in the past, and yet lawmakers have never allowed the program to broadly cut benefits. There's a good chance Congress will be able to make changes that allow Social Security to keep up with scheduled benefits this time around, too. 

If you jump the gun and claim your benefits early, you could end up with reduced checks that you're stuck with for the rest of your life.

Choose your Social Security filing age carefully

The idea of Social Security cuts is scary. But your best bet is to choose your Social Security filing age regardless of whether cuts happen.

You should base that decision on a few key factors:

• Your non-Social Security income. If you don't have a lot of it, then you may not want to claim benefits early.
• Your expenses. If you expect to have a mortgage payment in retirement or higher health care bills, larger monthly checks could help cover those costs.
• Your health and life expectancy. If you have great health and a family history of longevity, you may want to file for Social Security at FRA or later to maximize your lifetime income.

Bottom line

The logic behind claiming Social Security before benefit cuts hit is simple. Those cuts are not expected to happen until 2032 at the earliest. So if you file now, you may be guaranteed your monthly checks without a reduction for a few years.

But if you file for benefits before reaching FRA to get ahead of benefit cuts, you risk reducing a critical retirement income stream for life anyway. And that could end up being one of your biggest financial mistakes. A good idea, therefore, is to try to forget about potential Social Security cuts in the course of choosing the right filing age, and instead select the age that makes the most sense given your health and financial picture.