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Deciding when to take your Social Security retirement benefits is a crucial decision no matter when you do it.
Making that call during the coronavirus pandemic can increase the stakes.
This is because the age at which you decide to claim will block the amount of monthly income you receive for the rest of your life.
If you claim as soon as you are eligible (age 62), you will receive reduced benefits for starting early. Wait until your full retirement age, usually 66 or 67, depending on the year you were born, and you will be able to receive 100% of the benefits you earned.
It takes up to 70 years and you get a boost of around 8% for every year you wait from full retirement age.
Postponing Social Security until that milestone has always been difficult. It is based on the combination that will maintain your health, income and career.
Now, during the coronavirus pandemic, any one or all three factors may seem like bigger jokers than ever.
Meanwhile, recent research points to the idea that Social Security trust funds, which underpin the system, may be depleted sooner than anticipated.
Those factors could lead you to wonder if you should adjust your strategy. These are the most important questions to consider when weighing your claim decision.
Should I claim early because trust funds are running low?
Recent research from the Wharton School of the University of Pennsylvania found that Social Security trust funds could be depleted four years earlier due to the coronavirus pandemic.
That would push the date they are projected to run out to 2032 instead of 2036.
However, that does not mean that at that time there would be no benefits at all. The most recent estimate from the Social Security Administration sets the exhaustion date at 2035, at which time 79% of promised benefits will be payable.
To anticipate those changes, people should try to save more for retirement, said Kent Smetters, faculty director of the Penn Wharton Budget Model, a nonpartisan research organization at the school.
If people’s reaction to this recession is similar to the Great Recession, they may be tempted to claim benefits sooner. Boston College’s Center for Retirement Research found that the previous recession caused more than 5% of the eligible population to start receiving checks at age 62.
But funding fears alone should not prompt someone to file a claim earlier, said Joe Elsasser, president and CEO of Covisum, a Social Security claims software company.
“You just start thinking, ‘Would my cash flow situation still be okay if I received that kind of profit reduction?'” Elsasser said. “If not, there are a variety of ways to plan.”
That includes spending less early in retirement or delaying retirement. “Claiming early doesn’t solve that problem,” Elsasser said.
Does waiting until 70 still make sense?
The short answer to this question is for most people, yes.
This is because it is difficult to find an investment with the same guaranteed return, particularly in an environment of low interest rates.
“What you can get in terms of equally safe investment returns is very close to zero,” said Elsasser.
Meanwhile, investments in the stock market are often too risky.
If you are in your early 60s and have lost a job, you should only claim early if you have no other source of income, Elsasser said.
“If you have home equity or have 401 (k) or IRA savings, it is worth considering using those sources of income to close the gap during a period of Social Security delay,” said Elsasser.
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People who may justify taking early benefit checks include single men or women who have health problems. Otherwise, everyone should try to delay, particularly those with high incomes and who could also generate greater benefits for their spouses by waiting, Elsasser said.
If you decide to claim early, there are strategies you can apply if you change your mind later.
Once you start receiving checks, you have up to a year to withdraw your request. But you can only do this once in your life. And you must pay all the benefits you received.
Another strategy is to occasionally claim to suspend your benefits at retirement age and let them grow to 70. But you must be willing to live without those monthly checks during that time.
“Taking benefits for a year and suspending them at full retirement age could be a good way to restore that loss by taking a benefit early,” said David Freitag, financial planning consultant for MassMutual.
Where can I go for help?
Covid-19 has forced the Social Security Administration to close its local offices. Currently, there is no indication of when they can reopen.
“We cannot accept in-person visitors to our local offices at this time, except by appointment for situations of dire need,” the Social Security Administration said in a statement.
Because office visitors are often older, they are at increased risk for serious illness, the agency said.
“Our goal is to continue serving the American public while doing everything we can to reduce the risk to our employees and visitors,” the agency stated.
The good news is that most services are available online or over the phone.
If you want help solving your claim decision, there are better resources to turn to, Elsasser said.
Your Social Security claim decision must be coordinated with all the financial assets you have accumulated, he said.
A tool called Maximize My Social Security is a “reliable and strong tool,” said Elsasser. It costs $ 40 for an annual home license.
Another way is to meet with a financial advisor, who can help you make a plan. You will likely have to pay a fee for counseling. Just make sure the professional you meet is truly versed in the complexity of Social Security planning, Elsasser said.
“The easy way is to just say, ‘That makes a lot of sense. Show me the math,'” Elsasser said. “They should have done some kind of exercise that they can demonstrate in the software tool they use to show you why.”