Across the country, millions of Americans are experiencing financial struggles right now because of COVID-19. If you are one of those people struggling and you're 62 or older, you may feel you don't have many good choices for how to proceed. After all, if you've lost your job in your mid-60s, finding a new position right now could feel impossible with unemployment rates so high. And you may not want to go back to work right now anyway, as the coronavirus has proved to be especially dangerous for older people.
One option you may be entertaining is going ahead and beginning to claim your Social Security retirement benefits. However, if this is something you're considering, remember that there's a major downside: Claiming your benefits ahead of your full retirement age could be very costly since you'll be subject to early filing benefit reductions.
The good news is, you don't have to just give up and accept lower Social Security benefits for life if you need some relief funding to see you through a rough patch. There are a few Social Security claiming strategies that enable you to get money now without a substantial permanent reduction in the size of your checks. The bad news is, both carry substantial risks.
Let's take a look to see if either would make sense for you.
1. Claim benefits with a plan to rescind
One option that makes sense if you need some temporary financial help is to claim your Social Security benefits now with a plan to rescind your claim later. If you start your benefits and withdraw your claim within 12 months, it won't affect the size of your future checks. However, the big catch is that you have to pay back all the benefits you received when you withdraw your claim.
This strategy essentially allows you to get a short-term interest-free loan from Social Security. If you're confident you'll be able to repay the money, it can be a great one. But it's a lot easier to say you'll repay the benefits than to actually follow through -- and if you don't, you'll be stuck with the lower monthly benefit for life. You need to be willing to take that risk before you pull the trigger.
2. Claim benefits with a plan to go back to work ASAP
Another option is to claim benefits now with a plan to get back to work quickly and earn enough that they stop ASAP. This works because if you're under full retirement age, you can only earn so much before Social Security starts reducing the amount of your checks. You lose $1 in benefits for every $2 above the earnings threshold.
For 2020, if you'll be under your full retirement age during the entire year, you can earn up to $18,240 before you start losing your benefits. Or if you claim benefits partway through the year, you're subject to a monthly earnings limit of $1,520.
When you lose your benefits, Social Security withholds full checks to account for the amount you forfeit by working. If you earn enough, you won't get any more checks at all. And when you stop getting Social Security checks because you're working, you get credited back the reduced distribution amounts required for early filing for each month you get no retirement income. Your benefits are recalculated at full retirement age to account for the fact those penalties no longer apply.
The risk of this strategy is that you may not be able to find another job that pays you enough that you have to forfeit your benefit checks. And if you can't get back to work ASAP, all those monthly early filing reductions will apply after all and you'll be stuck with the smaller Social Security check.
Should you try out these high-risk Social Security claiming strategies?
Under normal circumstances, it's rarely a good idea to claim Social Security early in the hopes of getting a do-over by rescinding your claim or starting to work again to stop your benefits. But these are far from normal times. If you find yourself in a difficult financial position, you need money now, and you don't have other good options, you'll need to weigh whether the risks are worth it.
The good news is, you can use either one of these options -- so if you plan to withdraw your claim and pay back the benefits within 12 months and it doesn't work out that way, at least you can still try to go back to work and earn enough that you miss some months of benefits and prevent some of the early filing reductions from applying. While there's a chance neither works out, at least you have a few possible strategies that may enable you to get money now while you need it without consigning yourself to lower benefits for life.