So, What Goes with Social Security?

We’ve tried staying away from this subject because it seems so political. The Democrats are shreiking that the Republicans are about to “gut” Social Security and Medicare. The Republicans flatly deny that. Meanwhile both parties joined to pass a Social Security Fairness Act that increased benefits for some federal workers. The effect, according to the Congressional Budget Office (CBO) was to advance the time bomb of social security insolvency. Letter to the Honorable Chuck Grassley about the long-term effects of H.R. 82, the Social Security Fairness Act of 2023.

Again, this is a topic of huge controversy so we try to stay away while the guns are blazing. But Monday’s Wall Street Journal had a front page story about how Americans are reacting to the gunfight. In a word, they are not waiting/deferring when they take Social Security. Reason: if the pantry is on fire, I’ll take my share now.

So, let’s review to see how the fire started. When Social Security began in the 1930s both the tax and the benefits were negligible. In fact, the average life expectancy was less than the age at which you became eligible. By the 1980s the system was in trouble because the average life expectancy had advanced considerably. There was then a legislative fix which has held over time but is now in trouble because life expectancy continues to advance. Note also that any spouse married for 10 years can claim on an ex-spouse’s benefits without affecting the participant’s payment stream. Talk about fuzzy actuarial math.

The conventional wisdom has been to defer taking benefits as long as possible. The chart below shows why. There are three things on the menu. Early retirement can be taken at 62. Normal retirement is at ages 66 to 67  depending on your birth date. But if you defer collecting to age 70 you get super benefits.

 Early Benefit (62) $2,710   Normal Benefit (66-7) $3,822  Deferred benefit (70) $4,873

Waiting five years to normal retirement adds another $1,110 a month in benefits for life. Deferring eight years to age 70 adds $2,100 a month, again for life. So, why not defer?

I faced this choice in 2022 when I first became eligible for normal retirement. The conventional wisdom I read was to defer to 70 for the additional $1,051 a month. But when I actually looked at the options it occurred to me that in a market where I might otherwise have to take money out of the stock market to live, the market was hot and by deferring I would have to sacrifice 42 months of $3,822 in monthly payments or $160,524. Today, we have a new environment where the Congressional Budget Office says Social Security will tap out in 2034 and benefits will have to be reduced. We are putting some water on this fire in the sense that we keep increasing the pool of wages and salaries for which payments are due. A decade ago, no taxes were collected on income greater than $117,000. Today, the amount on which the 7.65% tax is collected is $176,100  and most people don’t realize the employer pays the equivalent tax just to have you.

Americans are paying attention to news about reduced benefits and lining up to get their benefits “now,” meaning when they first become eligible. Inquiries to the Social Security Administration are way up but the agency has seen cuts in personnel. People are worried that if the fraud allegations advanced by DOGE are true, money to pay benefits may not be there.

In 2023 roughly 25% of the people claiming benefits were age 62. That was before the DOGE allegations of widespread fraud and the added costs resulting from the Fairness Act signed into law in January 2025. The Journal also suggests that recent declines in 401K and other market exposed portfolia are also pressuring people to tap Social Security rather than liquidate those accounts in a declining market.

We have not seen data on how many eligible recipients take at what age beyond one-quarter at 62. But a shift to draw at 62 would, presumably, affect the liquidity of the nearly $3 trillion fund.

As was true in the 1980s, these concerns on the part of the public are quite real and merit a rapid but reasoned Congressional response. Unfortunately, we are swimming in a pond polluted by claims that (a) income taxes will be reduced or eliminated as we move back to a tariff based funding of the government (b) programs like Social Security and Medicare will be unaffected and (c) Social Security is at risk even in the short term.

Social Security Benefits To Be Interrupted Soon: Ex-Administrator – Newsweek. These plans are the bedrock of almost all retirees who are not eligible for defined benefit retirement plans (i.e., classic pensions). You really can’t “plan” separation or divorce with an equation lacking reliable integers for these income sources. That’s a problem.