What a difference a month makes.
When the coronavirus disease 2019 (COVID-19) was beginning to make its appearance in our own backyards at this time last month, the idea of shelter-in-place orders and virtual economic shutdowns seemed almost unfathomable. But with the number of confirmed COVID-19 cases essentially doubling globally between March 20 and March 27, with an even steeper confirmation pathway in some parts of the U.S., such as New York, the decision to implement stringent mitigation measures has become a necessary evil.
There's no doubt it's a disease that comes with the potential for serious health concerns. But it's also an illness that's a real threat to the financial well-being of the American public and those who are about to retire.
The big question is, should the coronavirus pandemic alter your original Social Security claiming plans? Let's take a closer look, because the answer isn't as cut and dried as you might think.
Don't claim early because you're worried about Social Security's solvency
One reason you'll absolutely not want to claim Social Security early is because you're concerned about the immediate impact COVID-19 might have on the program.
On one hand, Social Security will, in all likelihood, be adversely impacted by the coronavirus. The program has three ways of collecting revenue, with the 12.4% payroll tax on earned income doing the lion's share of the work. In 2018, the payroll tax brought in $885 billion of the $1 trillion that was collected. With unemployment rates skyrocketing in the U.S., it's a near certainty that payroll tax revenue will decline significantly in the short term, leading to Social Security's first net-cash outflow since 1982.
On the other hand, this net-cash outflow isn't going to impact the ability of the Social Security Administration to make payments to its more than 64 million beneficiaries. Social Security ended 2019 with $2.9 trillion in asset reserves, so there's zero chance of your normal payment being disrupted.
What's more, Social Security cannot go bankrupt. Since two of its three funding channels are recurring sources of revenue -- the payroll tax and the taxation of benefits -- there will always be money to disburse to eligible beneficiaries.
Don't be fooled into an early claim based on misinformation.
Statistically, waiting makes more sense
Another factor you should take into consideration is the statistical data on Social Security benefit claims.
Thankfully, we don't know our own expiration date. But this not knowing is precisely what makes picking the optimal claiming age such a crapshoot. We can certainly take into account our own health, the health history of our immediate family members, our marital status, and our financial situation when determining the best age to begin taking benefits. But the data doesn't lie: If you can wait, it's in your best interest.
According to a study released last June by United Income ("The Retirement Solution Hiding in Plain Sight"), researchers analyzed the actual claiming decisions of seniors in about 2,000 households versus what would have been their optimal claiming decision. Optimal in this instance is the claiming age that would deliver the highest lifetime income to the retired worker in question.
While the results showed that a vast majority of retirees began taking their Social Security payout at or before age 64 (and thus well before their full retirement age), the optimal-claim analysis found that 57% would have been best off taking their benefit at age 70 and thereby maximizing their monthly payout in the process. In fact, United Income's analysis found that 4 out of 5 seniors would have earned more in lifetime income by claiming at age 67 or later.
While not a slam dunk, waiting will be a smarter decision for a majority of seniors -- COVID-19 pandemic or not.
This Social Security mulligan may be perfect for baby boomers
Understand, though, that an early claim due to the coronavirus might actually be a smart move for some baby boomers. For those boomers who've lost their jobs due to COVID-19 and have no other sources of income or savings to fall back on, an early Social Security claim might be their only answer.
But before being pushed into such a scenario, it's important that boomers know all about Social Security's do-over clause. Social Security Form SSA-521 (officially, "Request for Withdrawal of Application") allows beneficiaries to essentially request a mulligan and undo their monthly payouts. Social Security recipients are able to make this request within 12 months of first receiving their monthly benefit, and, if approved, will be required to repay every cent they've received from the program. In return, it'll be as if they never took their payout in the first place, meaning their future monthly benefit (when they do actually claim) can continue to grow.
The reason this do-over clause is so especially important now is that many of the job losses experienced during the COVID-19 pandemic are being viewed as temporary. If these unemployed senior workers choose to claim their benefit and then undo their claim upon getting rehired within the next year, they'll have a way of perhaps bridging their unemployment period with some reliable income.
To sum up, most future beneficiaries would be wise not to alter their claiming decision due to the coronavirus pandemic. But if you must claim early, don't forget about Social Security's do-over clause.