Social Security has been in the spotlight ever since the Department of Government Efficiency (DOGE) began searching for waste and fraud in several government agencies, including the Social Security Administration (SSA).
Add concerns that the Social Security trust fund is running out of money to the mix, and many Americans are worried about their future benefits.
The SSA reported in late April that it has seen a "dramatic increase" in the number of Americans filing for initial Social Security benefits since January. This increase is across age groups and from high earners to low-income workers.
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According to the SSA, the highest 10% of earners applied at an earlier age than in the past two years. Moreover, as of the middle of April, 614,000 retirement claims for benefits are pending, which SSA officials said is an "extremely" high number.
While there could be many reasons to file early for benefits, DOGE and the projected Social Security shortfall can’t be overlooked as motivating factors, as the surge occurred after DOGE began meddling in Social Security.
“There are a lot of misconceptions out there around Social Security,” says Isabel Barrow, a financial advisor at Edelman Financial Engines. “Even if the trust fund is running out, it doesn’t mean Social Security is going away. There are still workers paying into it that will be able to provide the benefits to retirees.”
Social Security’s woes
It's no secret that Social Security has a funding issue. The program, which provides a safety net for more than 70 million Americans, is facing a financial shortfall. If nothing is done by 2035, it could run out of money in its trust fund (some studies suggest as early as 2033). That would force a 17% reduction in Social Security benefit payments.
There are many reasons Social Security is in trouble, but changing demographics is the primary factor. America's aging population means fewer young workers are paying into the system per retiree, with the trend gaining steam in the next two decades.
Another factor exacerbating the shortfall is the recent implementation of the Social Security Fairness Act (SSFA). This program increases Social Security checks for 3.2 million workers who receive public pensions. If Congress does nothing to shore up Social Security’s coffers, the SSFA is projected to hasten that shortfall by six months.
Then there’s DOGE and its efforts to cut costs at the SSA. Elon Musk, head of DOGE, said in February that department has uncovered “massive government fraud” at the agency, alleging that 150-year-olds were fraudulently receiving Social Security benefits.
DOGE has also cut staff and field offices and is currently fighting in the courts to access Americans' Social Security data, all of which is raising alarms and prompting people to file for benefits.
“If somebody is taking Social Security early because [they fear DOGE will lower their benefits], ... it doesn’t matter, they will still be affected,” says Denny Artache, president and CEO of Artache Financial Group. “We don’t know if anyone ... will be grandfathered in [before DOGE makes changes]. That’s a big if.”
Artache is skeptical that DOGE would do anything to impact the amount of benefits that retirees will receive. “What they are trying to do is cut out people collecting that should not be. I’ve never heard they want to affect the benefits,” he says.
Cons of collecting early
Whether you're thinking about taking Social Security benefits earlier than planned because of DOGE or looming funding shortfalls, money managers said to keep your eyes wide open when going that route. There are several negatives that need to be considered, including:
- If you take Social Security before Full Retirement Age (FRA), you’ll see a 30% reduction in benefits. “That does not go away,” says Artache. Plus, it leaves your spouse with less if you were to pass.
- If you make more than $23,000 a year, you’ll minimize your Social Security benefits and could potentially pay more in income taxes. If you're under your full retirement age, SSA will deduct $1 from your benefits for every $2 you earn above $23,400.
- In the year you reach full retirement age, SSA will deduct $1 from your benefits for every $3 you earn above $23,400. The deduction only applies to earnings before the month you reach full retirement age.
- The earlier you begin collecting Social Security benefits, the longer it will take to reach a break-even point with somebody who waited until their FRA to start collecting.
Pros of collecting early
Without a doubt, you’ll leave money on the table by collecting Social Security early, but there are situations in which it makes sense.
If you need the money and are worried about longevity, taking Social Security early might be the better option. If your family has generally enjoyed long lives and good health, delaying Social Security could be a better choice.
“It's a really unique situation. Everyone has their own longevity, everyone has their own healthy history, and everyone has their own income needs,” says Barrow. “When you take Social Security has to be a decision you make when all the factors are considered, not jumping to take it out of fear.”
Keep it in perspective
While Social Security seems to be undergoing major changes, this isn’t the first time alarm bells have been raised.
In the 1980s, Social Security faced a similar crisis and was on the verge of running out of money until President Ronald Reagan made changes to the trust fund, gradually raising the retirement age from 65 to 67, which shored up funding, says Bryan Bibbo, president and CFO of JL Smith Holistic Wealth Management.
In 2015, President Barack Obama signed a budget bill that eliminated certain claiming strategies, which also helped SSA’s coffers, says Bibbo.
“We’ve been here before,” he says. “Making financial decisions out of fear is the worst possible thing you can do."
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