It's fair to be concerned about the viability of Social Security, but there's little reason to allow this to impact your decision about when to retire.
There are many good reasons to delay retirement. You may love your job. You may lack a hobby that would otherwise fill your time. Or you may want to continue building your nest egg to ensure there's enough money in it to see you through your golden years. However, one thing that shouldn't play a leading role in your decision is concern over the solvency of the Social Security system.
It goes without saying that monthly Social Security checks are an important component of most peoples' retirement. According to the Social Security Administration, the elderly receive on average 38% of their income from Social Security benefits. Among elderly beneficiaries, 22% of married couples and 47% of single persons draw a staggering 90% or more of their income from Social Security.
It also goes without saying that the Social Security system cannot sustain its current course indefinitely. According to the latest Social Security Trustees Report, starting in 2019, the two trust funds underlying the system will begin to pay out more in benefits than they receive from employment taxes and interest income. This is projected to continue until the funds are depleted in the year 2033, after which the existing inflow from tax receipts will be sufficient to pay only "about three-quarters of scheduled benefits through the end of the projection period in 2088."
There's no question this is an ominous scenario. However, there's also no question that we've faced similar projections before and dealt with them successfully.
As I've discussed previously, following changes made to the system in the 1970s that yielded substantial cost-of-living adjustments to offset that era's double-digit inflation, it soon became evident that the Social Security trust funds would be insufficient to cover benefit payments starting in 1983. Congress responded, albeit at the last minute, by passing a series of legislative adjustments designed to correct the then-apocalyptic projections. Fast forward to today, and the funds are worth nearly $3 trillion.
From this, at least insofar as history is a guide, it seems reasonable to draw two conclusions. The first is that there's unlikely to be substantial changes made to the Social Security system until, as in 1983, legislators can no longer safely ignore the problem. Since Social Security is adequately funded for the next two decades, anyone currently in or on the cusp of retirement will be well into their 80s before the hypothetical changes would come into effect. Thus, there's little reason to allow fear about the viability of Social Security benefits to play a material role in deciding when to retire.
Secondly, though along these same lines, it's politically naïve to think that, once the system can no longer delay making changes, the result will be a serious blow to then-current retirees' benefits. Politicians are in the business of getting reelected and there's no constituency more important than retirees. They have both time and interest in following national politics and expressing their opinions at the polls. It'd be nothing short of political suicide for politicians to shortchange the very same people behind their candidacies.
To be clear, I'm not advocating a cavalier attitude when it comes to planning for retirement. It's always best to build in a margin of safety by ensuring that you've dotted all your i's and crossed all your t's financially before prematurely abandoning a paycheck in favor of a retired lifestyle. However, for the reasons discussed above, while there's little doubt that the Social Security system will eventually need to be tweaked to account for the evolving ratio of workers to retirees, there's also little reason to allow this still remote eventuality to influence your decision when to retire.