Social Security Cuts May Be Coming, but a Self-Imposed Cut Could Slash Your Benefits Even More

Written by Maurie Backman for The Motley Fool

Social Security faces the possibility of broad cuts in the coming years.

If you don't like the sound of that, make sure you don't file at a time that will lead to a reduction in your personal monthly benefits.

If you've been following the news on Social Security, you may be aware that the program's latest financial update wasn't good. The Social Security Trustees shared earlier this year that the program may be looking at a broad benefit cut as soon as late 2032.

The reason boils down to a shrinking workforce. Social Security gets most of its income from payroll taxes. But fewer people working means less incoming revenue to fund the program.

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Once Social Security's Old-Age and Survivors Insurance Trust Fund runs out of money, which is expected to happen during the fourth quarter of 2032, benefits could be in for a sweeping 22% reduction.

If you don't like the sound of that, you're not alone. But you should also know that filing for Social Security too soon could result in an even greater reduction than that for the rest of your life.

Many people don't want to wait for full retirement age when those benefits are available sooner. But if you file at 62, you could end up slashing your benefits by 30%. That's a bigger cut than the 22% reduction the Social Security Trustees are warning of.

Of course, lawmakers know there's a lot to lose by letting Social Security slash benefits across the board. For retirees without other income, a 22% Social Security cut could mean instant poverty. So there's a good chance Congress will step up and prevent Social Security cuts, as it has before.

But if you want to make sure your benefits aren't reduced by your own actions, sit tight until full retirement age. If you need money sooner, there may be other options you can explore, like part-time work, withdrawals from savings, or even tapping home equity for a limited period if you're able to do so affordably.

Reduced Social Security benefits could limit you financially throughout retirement. And while a broad cut may be out of your control, a self-imposed cut is something you can try to take active steps to avoid.

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