COVID-19 has profoundly affected the lives of millions of Americans. And it will do so for a long time to come. In addition to the devastating loss of life, many people will also face far-reaching financial consequences.
One of those consequences could be lower benefits for social security for life. Here’s why.
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The virus could prompt Americans to claim Social Security sooner than planned
According to a study by Nationwide Financial, an estimated 14% of all adults indicated that they plan to claim Social Security benefits earlier than they originally expected as a result of COVID-19.
This may seem like the right course of action for a number of reasons, with some people planning to take advantage before scheduling to retire early because they are afraid the virus is at work. Others may start benefits early because they have found themselves without a job and are unable to find work in the 2020 recession. Still others may have seen their balance sheet of the investment account hit when the market crashed in March, and may not have fully recovered its losses, even during the rally that followed in the following months.
But while there are many valid reasons to ask for benefits in advance ahead of schedule due to COVID-19, doing so may reduce your life expectancy. This is because advancing full retirement age means early submission penalties apply for each month you are early. And claiming any time between full retirement age and 70 means delayed retirement credits that would otherwise increase the size of your checks.
Early claiming could also increase the possibility that you will file for benefits without working for up to 35 years, further reducing the amount of your checks. The Social Security Administration bases benefits on average pay over that time period and includes zeros if you haven’t worked that long.
For those who choose to take their benefits earlier than planned, there are no do-overs unless you are able to take back your benefit within 12 months of making these en pay back everything you have received. And, contrary to popular belief, if you apply for benefits early and settle for a smaller check, your benefit amount will not be calculated on the whole calculation. The effects of early fines will never go away, and all future benefit increases are based on the smaller benefit you started with.
That means if you later regret the fact that you started getting your checks early in these turbulent times, you will have few or no options to resolve the issue.
Make the right choice when claiming your Social Security benefits
If you are facing serious financial difficulties and you need to pay Social Security early to avoid being forced to work in a job where you no longer feel safe, benefits ahead of schedule may be worth it to you be, even if your actions mean your controls will be smaller.
But before you make a decision that will diminish your benefits for life, you need to be sure to consider other options. If you have lost your job, for example applying for unemployment for as long as possible while looking for work may be a better course of action. Even if you can not find a traditional job that offers benefits in the workplace, recent research has shown that non-traditional work can improve pensionability for many Americans.
Of course, not everyone will have the option to find an alternative and avoid a claim of early benefits driven by COVID-19. But before you pull the trigger and put yourself back to a lesser check on social security, make sure you understand the consequences of your choice.
