In the wake of the coronavirus pandemic, unemployment is skyrocketing. Seniors who lose their jobs may be tempted to claim Social Security benefits early, but should they, given the resulting reduction in future benefits? The answer depends on your situation, but you may be able to claim and not sacrifice much in terms of future benefits.
While you can claim Social Security benefits as early as age 62, the better financial decision is usually to wait to take benefits as long as you are able. If you take Social Security between age 62 and your full retirement age, your benefits will be permanently reduced to account for the longer period you will be paid. Individuals who file at age 62 this year will receive 72 percent of their full benefit. On the other hand, if you delay taking retirement beyond your full retirement age, depending on when you were born, your benefit will increase by 6 to 8 percent for every year that you delay, in addition to any cost of living increases. This extra income could be very welcome, especially if you live into your 80s or beyond.
Unfortunately, many seniors who lose their job due to the coronavirus pandemic may find it necessary to apply for benefits early, potentially losing thousands of dollars in future benefits. Before rushing to apply for early retirement benefits, you should consider all your options. If you are lucky enough to have substantial savings, it may make sense to spend your savings rather than take benefits early. You may also be able to apply for unemployment benefits to allow you to further delay taking benefits.
If you do not have any savings or unemployment benefits to fall back on, your only option may be to claim benefits. However, if you do claim early and then go back to work, you may have the ability to increase those benefits. If you are able to stop the benefits within 12 months of starting, you can withdraw the application, repay collected benefits (see form), and still be eligible for the higher benefit amount at full retirement age or older.
If you take benefits early, but are not able to stop the benefits within 12 months of starting, you can still suspend your benefits to earn higher benefits. For example, if you start collecting at age 62, but no longer need the income once you reach your full retirement age, you could suspend benefits until age 70. You won’t get a complete do-over, but between your full retirement age and 70 you would earn delayed retirement credits, which would increase your ultimate benefit amount when you collect at age 70.
Whatever you decide, consider all your options carefully. Each person’s situation is unique, and you need to get specific advice from your attorney, tax advisor, and financial planner before making any decisions on whether or not it is wise for you to pursue any of these courses of action.
For further reading, see this New York Times article published in April 2020 about early benefit claiming during the Coronavirus pandemic.
*This article is provided for persons interested in elder law issues in Virginia and across the United States. This article has been written by a practitioner in the field of elder law, but unless otherwise noted, the writer is not affiliated with ThompsonMcMullan, P.C. Nothing in the newsletter or the articles is, or is intended to be, legal advice or a substitute for legal advice. If you need legal advice of any kind, please consult an attorney with experience in that area of the law, whether in our firm, or otherwise.