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How Recent Stock Market Volatility Could Impact Your Social Security Filing Decision

By Maurie Backman - Mar 11, 2020 at 6:36AM

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The market has been swinging like crazy lately. What does that mean for your benefits?

The past couple of weeks have been intensely volatile for the stock market, and with COVID-19 fears continuing to abound, it's hard to say when things might stabilize. The best way to protect your investments during this time, including your retirement savings, is to leave them alone and wait things out. After all, you only take losses on investments when you actually sell them when they're down.

But about your Social Security benefits? Should the market's recent downturn influence your filing decision?

Market volatility and Social Security

You may be inclined to rush to claim Social Security as you see your retirement savings balance fall. Such is the plan for 25% of older Americans, who say they'll consider claiming benefits early if the stock market keeps declining, according to SimplyWise, a retirement income technology provider. On the other hand, 44% say they'll specifically delay their benefits and continue to work if the stock market drops at least another 10%.

Close-up of older man with concerned expression

Image source: Getty Images.

Clearly, older workers are split on what to do about Social Security. So what's the right answer? Well, it depends. If you're still working and have the option to hold off on claiming benefits, you'll grow them by 8% for each year you delay your filing past full retirement age, which is either 66, 67, or someone in between, depending on your year of birth. Delaying benefits, or, at the very least, waiting until full retirement age to claim them, will make Social Security a more robust income stream for you, which will come in handy during a period of stock market declines. After all, the more money you collect in Social Security, the less compelled you'll be to cash out investments in your IRA or 401(k) at a loss to cover your bills.

On the other hand, if you've recently retired but haven't yet claimed Social Security, now might actually be a good time to do so, even if that means taking benefits a bit early. Though your benefits will get reduced for each month you claim them before reaching full retirement age, and they'll take a large hit if you file at the earliest possible age of 62, if you no longer have a paycheck coming in from work and were planning to rely on your retirement savings to cover your bills for a while, now's not really a great time to liquidate investments for usable cash. As such, taking benefits could be a reasonable solution despite the lifelong hit that will ensue.

Of course, there's another option, too. You could always claim Social Security early, wait out this bout of volatility, and then undo your filing within a year. Specifically, you'd withdraw your benefits application and also pay back any benefits you received during that time. From there, you'll get the option to file for benefits again at a later point, thereby securing a higher monthly payment for life.

This strategy could be particularly useful given the state of the stock market recently. Slumps like the one we're currently facing are often short-lived, so rather than take a major hit on your investments by liquidating them now, it could pay to claim Social Security, leave your portfolio intact, and wait for your investments' value to come back up. At that point, you can undo your filing, withdraw some money from savings to repay the Social Security Administration, and then grow your benefits by claiming them later in life.

Ultimately, this latest bout of stock market volatility may be harder on retirees and near-retirees than anyone else. The more strategic you are with your Social Security benefits, the easier it'll be to ride out the current storm and come out unharmed.

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