Is now really a good time to start claiming Social Security? | Smart Switch: Personal Finance

(Katee Brockman)

Choosing when to start claiming Social Security is a big decision, as it will affect your monthly income for the rest of your retirement.

The right age to file will depend primarily on personal factors, such as how much you have saved and when you want to retire. But sometimes your decision will also be affected by outside influences, such as the state of the stock market and future changes in the Social Security program.

The stock market has had a rough few months and some experts are predicting a recession looming. Also, Social Security cuts could be on the horizon, which could affect your retirement. So is this really a good time to start receiving benefits? This is what you need to know.

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How the Stock Market Can Affect Your Retirement

It can be challenging to retire during periods of stock market volatility. When stock prices decline, your retirement fund may lose value. If you make withdrawals during that time, you could end up selling your investments for less than you paid for them, losing money.

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While you don’t necessarily have to start claiming Social Security as soon as you retire, the two often go hand-in-hand. If you choose to retire and apply now, know that your savings may not go as far and you may end up depending more on Social Security.

This does not mean that you should not retire right now. But if your savings are running short, it may be a good idea to limit the amount you’re withdrawing from your retirement fund until the market recovers.

Likewise, it can sometimes be wise to delay taking profits if the market is unstable. Waiting to apply will result in larger checks each month, which means you may not have to withdraw as much from your retirement fund, and that can help your savings go further.

Preparing for Potential Benefit Cuts

Another factor to consider is the fact that Social Security benefits could be reduced in the relatively near future.

According to the latest report from the Social Security Administration’s Board of Trustees, the program’s trust funds are expected to run out by 2034. When that happens, there will only be enough cash to cover about 77% of scheduled benefits. That means unless lawmakers find a solution soon, benefits could be cut by as much as 23% by 2034.

No one knows for sure if these cuts will actually happen. But if you expect to rely heavily on Social Security in retirement, you may want to have a plan ready just in case.

One option is to simply save more in your retirement fund so you’re less dependent on Social Security. If benefits are cut, then it won’t drastically affect your retirement income.

Another strategy is to delay applying for benefits. Again, delaying even a year or two will increase your payments, sometimes by hundreds of dollars per month. That money can go a long way if Social Security faces cuts, especially if you have little savings.

Is now the right time to start claiming benefits?

There’s nothing wrong with applying for Social Security right now, but it’s important to be aware of how stock market volatility and potential benefit cuts could affect your retirement.

If you don’t have a lot of savings and expect to rely on your benefits for most of your income, it might be worth working a few more years to build up healthier savings. At the same time, that may also give you the opportunity to delay Social Security, resulting in larger checks each month.

On the other hand, if you have a solid retirement fund and don’t expect Social Security to make up a significant portion of your income, it may not necessarily matter when you file. While it’s still important to factor in your withdrawals during a market downturn, if you have a lot of savings, a market downturn won’t have as big of an impact on your overall retirement.

It can be difficult to decide when to start claiming Social Security, especially when the market is volatile. But by considering your savings and how much you expect to rely on your benefits, you can make the best decision for your particular situation.

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