What there is to know

  • Changes are possible to fix Social Security Trust Funds, which should only be able to pay full benefits until the 2030s.
  • While the uncertainty may prompt many to claim retirement benefits sooner, experts say it’s often a mistake.
  • Nearly three-quarters, 74%, of people say they can’t rely on Social Security benefits for the money they’ll have in retirement, according to a new survey from Allianz Life Insurance Company of North America.

NEW YORK — Negative headlines about the future of Social Security may affect how prepared people feel when it comes to their own retirement.

Nearly three-quarters, 74%, of people say they can’t rely on Social Security benefits for the money they’ll have in retirement, according to a new survey from Allianz Life Insurance Company of North America.

The company included questions about Social Security for the first time in its quarterly market perceptions survey, in response to increased emphasis on the program in the news. The survey, which was conducted in March, included more than 1,000 respondents.

In late March, Social Security Administration administrators released a new annual report with a more imminent forecast for the program’s two trust funds, one of which pays retirement benefits and the other disability benefits. In 2034, a year earlier than expected, the program may pay out only 80% of the benefits of blended funds.

Notably, the insolvency date of the only fund used to pay pension benefits is even older: 2033, a decade away. At that time, 77% of those benefits will be payable, the trustees project.

“While the program has been a great success, steps must be taken to ensure its long-term solvency,” AARP CEO Jo Ann Jenkins wrote in an opinion piece Thursday.

And while most leaders and experts agree that action is needed, what changes might come remains unclear.

For many, this adds more uncertainty to retirement planning. Concerns about being able to count on Social Security in retirement were most prevalent among Gen Xers, at 84%; followed by Generation Y, 80%; and baby boomers, 63%, according to the Allianz survey.

In addition, the survey also revealed that the majority of respondents, 88%, say having another source of guaranteed retirement income in addition to Social Security is essential to living comfortably.

However, not everyone is lucky enough to have other resources to rely on. Social Security is the biggest source of income for most people of retirement age, Jenkins noted. Meanwhile, for 14% of these people, it is their only source of income.

“Unfortunately, that’s one of the things that makes people make the mistake of claiming their benefits too soon,” Kelly LaVigne, vice president of consumer insights at Allianz Life, said of the outlook. from the program.

They think, “‘I’m going to get mine before it gets ruined,’ when that really doesn’t help at all,” he said.

“It’s still a big advantage to wait”

To see how a 23% reduction in benefits (based on the latest Social Security Retirement Fund projections) would affect you, experts say it’s best to turn to a calculator or similar online tool to maximize benefits.

Larry Kotlikoff, an economics professor at Boston University and creator of Maximize My Social Security, a claims management software tool, crunched the numbers and said “there’s still a big upside to expect.”

“The reduction in benefits will happen even if you take them earlier,” Kotlikoff said.

“So the benefit of taking them early is less than you might expect,” he said.

The changes were enacted in 1983 to consolidate social security. A key reform – raising the full retirement age, when recipients can get 100% of the pension benefits they’ve earned – is still being implemented today. For people born in 1960 or later, the retirement age will be 67, not 66, as it was for older cohorts.

Lawmakers can follow the same strategy again and raise the full retirement age to 70, according to Kotlikoff. In fact, some leaders in Washington are already discussing this idea.

Under the current rules, claimants can get a big boost, up to 8% a year, for waiting until full retirement age until age 70 to start receiving benefits.

In particular, for single people, who don’t have a spouse or children who might qualify for benefits based on their history, it still makes sense to wait, according to Kotlikoff.

However, for other situations (lower life expectancy, disabled children who cannot collect until you collect them, a spouse who might also collect benefits to care for them), the software will generally recommend starting at a younger age, according to Kotlikoff. .

If the retirement age is raised, it will be a reduction in benefits. However, such a change is unlikely to affect current or future retirees, Kotlikoff and LaVigne said.

Why You Shouldn’t Claim Just to Get an 8.7% COLA

There’s yet another reason why people may be tempted to claim retirement benefits sooner: an 8.7% cost-of-living adjustment, or COLA, that came into effect this year to offset the sharp inflation. This is the largest increase in about 40 years.

“If you’re 62 or older, whether you’re claiming your benefit or waiting, that (COLA) has been increased to your Social Security amount,” LaVigne said.

In other words, either way, you will benefit whether it increases the amount you receive in the future or the amount you take right now, he said.

Rather than focusing on the COLA, it’s important that potential recipients focus on making a plan so they know how to lower their tax bills and what to do if inflation rises again during their retirement years.

“If you don’t have a plan in place, how do you know what to do when the unexpected happens?” LaVigne said.

It is article It was originally published in English by Lori Konish for our sister network CNBC.com. For more on CNBC, head here.

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