Security In Retirement: Making Decisions About Your Social Security Payouts

As you likely know, this has been an extraordinary year for news about the Social Security Administration. With all of the political changes in Washington and efforts to slash government spending, there has been enormous upheaval in the Social Security Administration, which continues on to this day. While many beneficiaries have been burdened by trying to negotiate the system with limited staffing and overworked administrators, the work of providing retirees with their earned benefits continues on, albeit with growing public concern about the fate of the SSA once the trust fund runs out of money in 7 years, and beneficiaries may face payment cuts as a result. But for now, let’s focus on the current payment system and why so many need this essential revenue source to maintain a basic quality of life in their later years.

Several changes to the current program are scheduled to take place starting in January 2026. Perhaps of most interest is the Cost of Living Adjustment (COLA), which is intended to help beneficiaries keep up with rising prices. This coming year, the COLA will be 2.8%, which is higher than last year’s rate increase of 2.5% but among the smaller increases since 2020. Whether this will help recipients keep up with the rising cost of consumer goods and services is a hotly debated topic, especially since many, if not most, recipients will also be facing a higher Medicare Part B premium, so that the actual net amount from the rise in their Social Security payments will be greatly reduced (estimates are that 40% of the COLA increase will be subsumed by the Medicare premium increase). A recent poll conducted by AARP reports that 77% of Social Security recipients state that this 2.8% increase will be insufficient to help offset rising prices, and this rejection of the 2.8% increase was consistent across all political affiliations. In fact, 72% of those polled said the increase should have been at least 5% or higher, and 26% said the increase should have been at least 8% (in 2023, during the pandemic, the increase in COLA was 8.7%).

According to Investopedia, the average monthly payment for a Social Security recipient in 2026 will be $2071. Depending upon your circumstances, this may be a supplement to other retirement income from work or investments, or this may constitute the bulk of your income, leaving you in a tight squeeze as prices rise and unanticipated emergencies strain your budget. According to a recent story on Marketplace, one in 7 recipients of Social Security aged 65 and older relies on this monthly payment for nearly all of their disposable income each month. In fact, were it not for Social Security, 37% of older adults would live below the official poverty level, and even with Social Security, 10% of older adults still live in poverty. Social Security was never intended to be the only source of retirement income an older adult would live on, and for a typical retiree, the monthly payment replaces about 35-40% of their pre-retirement income. But if you have no other sources of retirement income or revenue, you may have great difficulty filling this gap and be forced to live within an extremely strict budget.

You may know that as of age 62, most older adults are eligible to start their Social Security payments, albeit at a rate significantly less than if they waited until their Full Retirement Age, which will now be age 67 for those born in 1960. So the system incentivizes you to delay as long as you can, but for many individuals, an income shortfall while they are still working or a decision to retire early necessitates starting Social Security payments at the earlier age of 62. Apparently, almost ½ of those currently approaching retirement plan to start their Social Security benefits before their Full Retirement Age, while only 10% plan to wait until the latest they can, which would be age 70. Why is that? A new survey from Schroeders outlines many of the reasons retirees are not waiting to collect higher Social Security payments. While most respondents were aware that waiting until age 70 would lead to the highest amount they could collect from Social Security, the majority of those not-yet retired are worried about needing income that comes from Social Security or worried they will outlive their savings, so they do not want to wait that long. They are also worried about shortfalls in the Social Security system itself, and fear it may run out of funds for them. A recent story in The New York Times profiled several retirees who decided to collect their payments early, reporting that only 8% of men and 8.6% of women hold off until age 70 to start collecting their benefits. According to this reporting, more than 90% of all new Social Security claims are filed by people under the age of 70. Even though claiming your benefits starting at age 62 means you likely receive a 35% lower payment than had you waited until age 70, many just cannot hold off that long, with a large number of early claimants having been without a job for years. They simply cannot afford to hold off until age 70. It tends to be the healthier and wealthier who wait as long as possible.

There is another growing reason many take their benefits before their Full Retirement Age. According to Kerry Hannon, an expert on older workers and retirement planning, many plan a “slow fade” into retirement, and use their Social Security payment while continuing some kind of work, either because they need the addition of Social Security to help pay their bills or because they hope to transition to a different type of employment and need the safety net of Social Security to support this transition. In fact, while there are some rules about collecting Social Security while still holding a job, and some of your payment may be temporarily withheld if your income from employment goes over a certain amount, it’s becoming more common for older workers to start collecting Social Security while still in the workforce. Many simply can’t afford not to take this approach. In fact, the data show that 4 in 10 Social Security recipients now hold at least a part-time job while collecting benefits.

With statistics like these, it’s self-evident that Social Security plays a large and important role in the lives of millions of older adults. It’s not just ancillary income, but rather, for a significant number, it’s a lifeline to keeping their heads above water as prices continue to rise and their cost of living becomes unaffordable. Whatever happens in the years to come with proposed changes to the system, policymakers must understand the central role that Social Security plays in maintaining a decent quality of life for millions of older Americans.