Congress has fiddled while the Social Security trust fund has burned. Nothing has been done for years to rescue the finances of America’s retirement plan as it has hurtled towards D-Day: Depletion Day, when the trust fund runs out of money.
D-Day is in 2035.
About one third of working age Americans over the age of 45 say they are now so worried about the system that they are planning to start taking benefits early, even at huge financial cost, just to make sure they don’t get cheated out of benefits by Congress.
That’s the number revealed in the latest 2022 U.S. Retirement Survey from Schroders, the investment bank. The number who plan to claim early to avoid getting cheated by Congress is actually slightly larger than the number who plan to claim early because they simply need the money.
This is a system that people have been paying into all their lives, at enormous personal financial cost, and which they have been repeatedly reassured was safe and sound. And now a third of workers over the age of 45 are afraid it won’t be there for them if they wait.
Schroders doesn’t say, but the gloom among people even younger is probably worse still.
The cost of claiming Social Security early is devastating. Some who start claiming as early as possible, age 62, will end up receiving monthly benefits that are barely half those of someone who waits until age 70 to claim the maximum.
How many people can seriously afford to give up half their monthly retirement income? Not many.
Social Security isn’t just the cornerstone of the American retirement system: For many people it is the only retirement system they have. For about one quarter of Americans over the age of 65, Social Security accounts for 90% of their income. And for about half it provides about 50%. Economists estimate Social Security accounts for about 40% of total household savings for working Americans. Few private employers offer traditional pension plans any more, and those on lower wages, and those in transitory jobs and occupations, rarely get a 401(k) plan.
Delaying the start date of Social Security as long as possible, and ideally until age 70, is the single most powerful thing most ordinary Americans can do to make sure they get to retire in dignity. A new paper published in the Journal of Retirement runs some of the math. In a nutshell, delaying claiming as long as possible makes compelling sense unless you are sufficiently hard up that you desperately need the dollars as soon as you can get them.
Yet here we are, two months ahead of a pivotal election, and one party says it may want to “save” Social Security by cutting it, only they won’t call it cutting it, and the other party is engaging in fantasies about expanding it—possibly using a magic wand from Hogwarts—even while happily finding the money needed to bail out private pension funds.
This issue needs to be made front and center of what remains of this election campaign. Voters could usefully start by demanding a clear, on the record commitment from every candidate that they will ensure Social Security meets its commitments to every American.