The coronavirus pandemic is making everyone feel financially vulnerable, and those who are in or nearing retirement are among the most at risk. With millions of people having lost their jobs and millions more facing temporary work stoppages that have caused their income to dry up, there's a lot of pressure to get money wherever you can.
Those who are 62 or older and have a qualifying work history can claim Social Security retirement benefits, and that's a choice that many of those in or near retirement might have to make. Yet claiming earlier than you wanted will have permanent consequences for how much your monthly checks will be for the rest of your life -- and could also adversely affect how much your loved ones get after you're gone.
Rather than facing that dilemma, one financial advisor has an idea that would let those in need get some Social Security benefits now without having to sacrifice their financial future later. It could take some work for lawmakers to embrace the proposal, but it has the benefit of being consistent with other parts of existing Social Security provisions while getting the immediate job done of getting money to financially strapped Americans quickly.
The dilemma for those in their early 60s
Ric Edelman is a well-known financial advisor and author, with decades of experience that he's put to use in writing 10 personal finance books and producing a long-running radio program. In his work with older clients, Edelman has seen how people struggle with the decision on when to claim Social Security.
The problem is that once you take early benefits, your only choice if you want to change your mind is to withdraw your Social Security application entirely. You only have 12 months to do that, and worst of all, you have to pay back in full any benefits you've received to date. Few people are in a position to do that, so they typically just accept their bad timing.
Doing so is costly, however. Claiming at 62 means accepting a monthly payment that's 25% to 30% lower than what you'd get by waiting until full retirement age. Moreover, you also forego the opportunity to claim delayed retirement credits if you wait beyond full retirement age. Add those impacts together, and you could miss out on a monthly payment that's more than 75% higher at 70 than it would be if you had to claim early at 62.
Allowing temporary Social Security benefits
Edelman's solution is simple but elegant. He suggests allowing people to claim early Social Security benefits like normal, but then give them the ability to suspend their payments once they no longer need them. The idea now is that for those suffering coronavirus-related money problems, they could get monthly payments from Social Security for as long as they're laid off or lose their other income sources, and then suspend those payments once things go back to normal.
Social Security already allows this for those who've reached full retirement age. If you suspend your retirement benefits, then you can earn the same delayed retirement credits that you'd ordinarily earn if you hadn't yet claimed your Social Security. However, that option isn't currently available for those seeking to suspend their payouts before reaching full retirement age.
One way to make this work would be to let people suspend their benefits at will, and then give them credit for any months that they didn't receive benefits by boosting their monthly payout when they later claim again. That's how Social Security currently handles forfeited benefits due to excess earnings, so there's a mechanism to deal with the situation already in place.
Will lawmakers offer help?
With Congress having just offered a massive stimulus package to help those whom the coronavirus has hit hard financially, it could be difficult to consider yet more relief. However, with older Americans particularly at risk from the financial impacts of the pandemic, it would provide targeted help to extend the ability to suspend Social Security benefits taken temporary during the coronavirus crisis.