The coronavirus pandemic has significantly impacted the U.S. economy, causing many workers' retirement investments to plummet. For those of you who are nearing retirement age, this means you may need to adjust your future plans if your savings aren't as strong as you'd hoped they would be by this point.
There's one other important aspect of your retirement, however, that could be impacted by the coronavirus: The age you start claiming Social Security benefits.
How COVID-19 affects Social Security
While the coronavirus will not affect how much you receive in benefits, it can impact when you should begin claiming.
If your investments have taken a significant hit in recent weeks and you're planning on retiring within the next year or two, you might need to delay retirement by a few years if your current savings aren't enough to live on. If you do choose to retire during a market downturn, you're essentially locking in losses when you start withdrawing money from your retirement accounts. In other words, you'll be buying high and selling low. To avoid that scenario, it may be a good idea to wait a few years to retire until the market starts to recover.
By delaying retirement, you might also choose to delay claiming Social Security benefits by a few years -- which will increase the size of your monthly checks. You can begin claiming benefits as early as age 62, but you'll receive an 8% bonus for every year you wait to claim up until age 70. Waiting a few years to claim benefits could result in receiving hundreds of dollars more per month, which can go a long way if your savings are falling short.
However, not everyone has the luxury of delaying retirement. The coronavirus has cost millions of workers their jobs, with more than 3 million Americans filing for unemployment in the span of just one week. If you're close to retirement age and have recently lost your job, there's a chance you could be forced into an early retirement whether you're ready or not.
This can be particularly worrisome if your investments have sharply declined, because you may not be able to afford to retire on your savings alone. In this case, you may have to claim Social Security benefits as early as you can just to make ends meet.
When should you claim Social Security benefits?
The right age to claim benefits will depend on your unique situation, so the answer will be different for everyone. One thing to keep in mind, however, is that your Social Security benefit amount will remain the same for the rest of your life after you begin claiming, aside from annual cost-of-living adjustments. So if you claim early and then a few years down the road change your mind, you can't undo your decision. This means it's extra important to make this decision carefully.
If your savings likely won't last you more than a couple of years in retirement, you may be better off delaying benefits to earn those fatter checks. And because you'll receive benefits for the rest of your life, bigger checks can provide a cushion in case the market dips again down the road and your investments take another hit.
On the other hand, there are some cases where it may actually be wiser to claim sooner rather than later. For example, if you're facing health issues and don't expect to spend decades in retirement, claiming as soon as you can might be a smart move. Although you'll receive less each month by claiming early, you may receive more over a lifetime compared to if you'd waited several years to file for benefits. Additionally, if you lose your job and desperately need income, claiming early may be better than racking up debt just to pay the bills.
When to claim Social Security is a personal decision, but it's crucial to take this decision seriously, because it will impact your monthly retirement income for the rest of your life. The coronavirus pandemic may influence your choice, but make sure you've considered all your options before you file for benefits. By doing your homework and making the most informed decision possible, you'll ensure you're doing everything you can to set yourself up for retirement success.