As companies reopen and Americans begin to return to work, the unemployment rate fell from nearly 15% in April to just over 11% in June, according to the Bureau of Labor Statistics.
However, as workers return to their jobs, the number of COVID-19 cases has skyrocketed. In the first two weeks of July, the US has seen approximately 50,000 new infections each day, compared to approximately 30,000 new cases per day in April during the peak of the pandemic.
More COVID-19 cases could cause companies to close again, which can lead to more layoffs. If you are close to retirement age, losing your job could ruin your retirement plans. But if things get worse and you find yourself unemployed later in life, there is good reason to consider claiming Social Security benefits as soon as possible.
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Claiming early can pay later
Claiming Social Security early means applying for benefits before your full retirement age (FRA), which is 67 years for those born in 1960 or later, or 66 or 66 and a few months for those born before 1960. Most The earliest you can start claiming is at age 62, and sometimes claiming as soon as possible can be a smart move.
If you lose your job in the early 1960s and can’t find another one, you may need to start withdrawing money from your retirement fund to make ends meet. But withdrawing your savings during a recession can be risky, especially if another stock market crash looms, which could be possible if companies have to close once again.
Withdrawing your savings during a market downturn means selling your investments when stock prices are lower. Because you technically don’t lose any money until you sell, withdrawing when prices are low means you’re blocking your losses. For that reason, it is best to avoid taking money from your retirement fund as much as possible when the market is down.
By claiming Social Security benefits early, you’ll have a little more cash to pay your bills, making it easier to withdraw less from your retirement fund. The more money you leave in your retirement account, the more you can grow as the market recovers and the longer it lasts. And if you’re forced to retire early, you’ll need your savings to last as long as possible.
One thing to keep in mind is that you can continue working even after claiming benefits. If you claim before your FRA, your checks may be temporarily reduced depending on how much you earn. But then, once you get to your FRA, the Social Security Administration will recalculate your benefit amount and start earning bigger checks. So if you claim early but then find another job later, you can work and collect benefits at the same time.
The disadvantages of claiming early
Claiming benefits early can help your retirement savings last longer, but there are downsides to this approach, too. The biggest drawback to claiming early is that your benefits will decrease for each month you file before your FRA.
If you have a 67-year FRA and claim at age 62, for example, your checks will be permanently reduced by 30%. By waiting until your FRA claims, you will receive 100% of the benefit amount to which you are entitled. Defer benefits after that age, and you’ll receive an additional 8% per year until age 70.
Delaying benefits could be a wise decision if you expect to live long. Because Social Security benefits are for life, you will continue to receive checks even after your retirement fund runs out. According to the Centers for Disease Control and Prevention, the average life span of an American is around 79 years, so if you have reason to believe that you will live longer than that, those larger checks could be a big help.
On the other hand, not everyone can afford to wait until the late 60s or 70s to start claiming benefits. If you had to drain your retirement fund to delay benefits, waiting to claim may not be for you.
You can also verify your future benefit amount by creating an online mySocialSecurity account. This will give you an idea of how much you can expect to receive in your FRA based on your actual earnings. From there, you can determine whether the boost you’ll get from delaying benefits is worth it, or whether it’s better to claim benefits sooner.
Which option is right for you?
These are unprecedented times, which means you may need to be flexible with your retirement plans. If you lose your job unexpectedly, claiming benefits early can help your savings last as long as possible. Just make sure you have considered all of your options and made the best decision for your situation.
