Perhaps the best thing about 2020 is that it’s over. Without question, it was a challenging year for everyone. And when it comes to the havoc COVID-19 wreaked on the workforce, older workers were particularly hard hit.
While the pandemic caused massive unemployment across all age groups, the unemployment rate for older workers did not remain below that of their younger counterparts like it typically does during a recession.1
The numbers back this up. The overall unemployment rate decreased from 6.9 percent in October to 6.7 percent in November. In contrast, the unemployment rate for people ages 55+ increased from 5.4 percent to 5.8 percent.2
To make matters worse, the average length of unemployment for job seekers ages 55 to 64 was 20.9 weeks in March 2020, compared with an average of 17.5 weeks of unemployment among all workers, according to an AARP Public Policy Institute analysis of Bureau of Labor Statistics data.
With this mix of challenges for older workers, it makes perfect sense that those 62 and older might be asking themselves, “Should I take Social Security early?” Given the long-lasting financial implications that claiming Social Security has — it’s important to consider all your options before making a decision to claim Social Security at age 62.
Why claiming Social Security before full retirement age should be a last resort
For most Americans, Social Security benefits are one of their most valuable assets in retirement, which is why getting to Full Retirement Age (FRA), or to age 70, when they get the maximum Social Security benefit, is so important. With that said, it’s also the only social safety net available to older adults that provides a steady and reliable income.
It’s also worth noting that taking Social Security early comes at a cost in the form of lower monthly payments for the rest of your life. These early filing reductions are not insignificant, as they could cut one’s benefits by as much as 30 percent.3
In times like these, you’re likely looking to find the best way to balance your immediate needs with your long-term needs. As part of that evaluation process, considering all possible sources of funding aside from claiming Social Security early is a good idea. These other sources could include tapping into your home equity either through a loan or reverse mortgage, using funds from a 401(k) account, or other investments.
What if you find work after claiming Social Security early?
If you’ve exhausted all other options, then filing early makes sense. However, if you end up finding a job, locating another source of funds, or simply change your mind, you still have a few choices:
1) If it’s within the first year of claiming: You can stop and pay back all the money you’ve received. This essentially resets everything as if you had never claimed at all.4
2) If your claim was made over one year ago: You can no longer withdraw from benefits, but when you reach FRA, you can voluntarily suspend your retirement benefits. That will have the effect of earning you delayed retirement credits , which will ultimately increase your monthly Social Security payments when you resume collecting benefits, which ideally happens at age 70 when they have been maximized.4
An additional consideration is if you find work again before FRA, Social Security will adjust your monthly benefit above a certain threshold of income. Here’s how it works. The Social Security Administration temporarily withholds benefits for annual earnings prior to FRA above the threshold of $18,960 a year for 2021. Beyond that amount, a person sees $1 deducted from their monthly benefit payments for every $2 earned.5
The good news is, this reduction of benefits prior to FRA due to increased earnings will have a long-term benefit, as the benefits are recalculated and increased to account for this activity.6
Married couples can create a claiming strategy around one spouse claiming early
If one member of the couple has been laid off and finances are tight, they may want to consider taking advantage of something called a spousal benefit.
When a worker files for retirement benefits, the worker's spouse may be eligible for a benefit based on the worker's earnings. Another requirement is that the spouse must be at least age 62. The spousal benefit can be as much as half of the worker's "primary insurance amount," depending on the spouse's age at retirement. If the spouse begins receiving benefits before "full retirement age," the spouse will receive a reduced benefit. 7
Put another way, taking the spousal benefit early, like at age 62, reduces the amount to as little as 32.5% of the higher earner’s benefit.
Evaluating your options for when to claim Social Security is a worthwhile exercise
Whether you ultimately decide to claim Social Security early will likely come down to your specific needs and goals. Researching your options both before and after claiming will provide invaluable insights to help you make one of the most important decisions in your retirement.
Things to Consider:
- Consider all possible sources of funding aside from claiming Social Security early.
- Call the Social Security Administration to discuss your claiming options.
- If you’re married, look into options around your spousal benefit.
1 “A Pandemic Problem for Older Workers: Will They Have to Retire Sooner?,” The New York Times , June 2020
2 “November 2020 Employment Data Digest,” AARP Public Policy Institute, November 2020
3 “Early or Late Retirement?” Social Security Administration, December 2020
4 “Retirement Benefits,” Social Security Administration, December 2020
5 “$17,707.20 is the maximum tax if you're self-employed,” USAToday , January 2021
6 “Laid Off During the Pandemic: Should You Tap Into Social Security Early?,” AARP , July 2020
7 "Benefits for Spouses," Social Security Administration, December 2020
8 “12 Things You Must Know About Claiming and Maximizing Your Social Security Benefits,” Kiplinger , November 2020
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