The Pros and Cons of Claiming Social Security Early During the COVID-19 Pandemic
Retirement Daily Guest Contributor
By Matthew Allen
During historic unemployment stemming from COVID-19 and the mass layoffs that have occurred, millions of Americans have been forced to take their Social Security benefits earlier than they otherwise planned.
While a very helpful source of cash flow, taking Social Security benefits early comes at a significant cost. This is because there is a percentage reduction of up to 25% if you claim before your full retirement age or FRA (66 for most people), but you also miss out on any delayed retirement credits going forward, that otherwise would have continued to build your Social Security monthly payments at the rate of 8% per year for each year that you waited, up to a maximum of 132% at age 70.
Am I Completely Locked Into This Decision Now?
If you did have to claim early, the good news is that you are not completely locked into this decision. You have two primary options going forward to help minimize the damage:
1. Suspend your benefits after full retirement age: Once you reach FRA, you are allowed to suspend your benefits and you can restart them in any month up until age 70.
Doing so means that your Social Security benefits will be put on hold, but in exchange, you will start to earn delayed retirement credits at the rate of 8% per year again (up to a maximum of age 70). This is a difficult rate of return to beat considering that Social Security benefits are backed by the federal government.
2. Withdraw your Social Security claim within one year: Alternatively, you can completely withdraw your Social Security benefits within 12 months of your entitlement and reset the clock as if you never claimed benefits. To accomplish this withdrawal, you would need to file a withdrawal of application and repay any Social Security benefits you have received. When you’re ready to reclaim in the future, you would need to file a completely new application at that time. This can be a great solution for those who experienced a temporary layoff lasting less than 12 months. Keep in mind though, you are only allowed to withdraw once in your lifetime.
For either option one or two above, it is recommended that you work with an adviser well-versed in these tactics to make sure they are implemented correctly.
Social Security and Unemployment
It is possible to receive both Social Security benefits and unemployment simultaneously; the receipt of the one does not impact the other.
Turning to unemployment first and Social Security as a secondary resource is typically the recommended route because, of course, claiming unemployment leaves your Social Security completely intact without any ongoing benefit reduction.
Don’t Miss Out on Spousal Benefits
If you’re married are forced to file for Social Security benefits early, at least be sure to consider whether your spouse may be able to receive extra Social Security benefits based on your record as well if your spouse had earned significantly less than you over your career. A spouse is allowed to receive up to 50% of your full retirement age benefit amount depending on exactly when he/she claims these benefits.
If you are divorced and your ex-spouse was a substantially higher earner, be sure to look into whether you should be receiving extra benefits based on his/her record. Again, you’re allowed to receive up to 50% of your ex-spouse’s full retirement age amount depending on the age that you claim the ex-spousal benefit.
Claiming Social Security and Still Working Part-Time
You are allowed to claim Social Security early and work, up to a limit if you’re under full retirement age. The earnings test applies to those who claim Social Security benefits prior to their full retirement age (66 for most people) and are still working and earning an income.
Earning more than $18,240 in 2020 in earned income while collecting a Social Security benefit will cause the Social Security Administration to withhold $1 for every $2 in earnings over the Earnings Limit.
While this money is not technically lost (the Social Security Administration credits it to your account at your Full Retirement Age), claiming early and having benefits withheld can present two major problems:
1) Benefits will be withheld so you will not receive all the benefits (if any) anticipated as the result of claiming
2) Claiming early (even if you’re not receiving a benefit because it’s being withheld) will still lock you into the early claim date, which means a suboptimal Social Security strategy and less money.
If you are over full retirement age, there is no Earnings Test, so you can both receive Social Security and earn an unlimited amount of income. Read Income Taxes And Your Social Security Benefit.
Where to Turn for Help
With all Social Security Administration offices closed to in-person public visits until further notice, filing and obtaining assistance with these decisions is even more difficult than usual.
The Social Security Administration is still taking calls and appointments via telephone at 1-800-772-1213, however, wait times are at historic highs. The Social Security Administrations online services for filing for benefits are still available at https://www.ssa.gov/benefits/retirement/ however, because the Social Security Administration is prohibited from providing personal advice, it is important that you know the ramifications of your filing decisions before you move forward, not only for you but also for your spouse, if you are married, because your filing decision can impact your spouse’s options in terms of any spousal benefits and also any eventual survivor benefits.
Professional guidance from an adviser well-versed in Social Security claiming strategies is highly suggested before moving ahead. There are also professional Social Security filing services offered by companies like ours that can assist with your application for benefits but then also can help with your later suspension or withdrawal of those benefits.
About the author – Matthew Allen
Matthew Allen is the co-founder and CEO of Social Security Advisors, which is dedicated to maximizing social security benefits for its clients through customized Social Security strategies. Matthew has helped thousands of seniors maximize their Social Security benefits and avoid costly mistakes when filing and has been at the forefront of financial services for over two decades. He is frequently quoted for his expertise in Social Security planning by leading financial publications such as Forbes, Time Magazine, The Wall Street Journal, InvestmentNews, USA Today, and others.
A Free Initial Consultation can be scheduled here: http://socialsecurityadvisors.com/appointment and a free live chat is available for your Social Security questions here: http://socialsecurityadvisors.com/chat
Additional free educational content is available here: http://socialsecurityadvisors.com/education. Lastly, if you need help with Medicare Planning, Social Security Advisors offers its expertise in Medicare planning and can handle all of your Medicare advisory and filing needs.