The COVID-19 crisis is making many people rethink the way they approach their finances. Some folks, for example, are boosting their emergency funds rather than investing whatever extra money they have. Others are scaling back on retirement plan contributions and diverting more of their money to near-term savings instead.
Retirees and near-retirees are facing important financial decisions, too. Some may be postponing their workforce exit because now's a bad time to start taking IRA or 401(k) withdrawals. Others are looking at rebalancing their portfolios given the recent bout of stock market volatility.
And then there's Social Security. COVID-19 may be prompting seniors to rethink their plans to claim benefits. In fact, you may be tempted to file for benefits early because of the ongoing crisis. But before you do, consider the ramifications of going that route, and the reasons it still makes sense to wait.
Why you may be tempted to claim benefits early
The COVID-19 crisis has taught the public one harsh lesson: Life can change in an instant. As such, those who once planned to claim Social Security at full retirement age or later may be rethinking that plan.
You're allowed to claim Social Security as early as age 62, but for each month you file ahead of full retirement age, your monthly benefit is reduced permanently. If your full retirement age is 67 but you claim benefits at 62, you're looking at collecting 30% less than what your full benefit would've otherwise amounted to.
Still, you may be tempted to claim benefits early due to any of the following reasons:
- You're worried about losing your job and figure you could use the extra money right now
- You don't have emergency savings and think you'll use your benefits to pad your bank account
- You're worried about falling ill yourself, and figure you might as well start collecting benefits as soon as you can
To be clear, these are all valid reasons for wanting to claim Social Security early. But before you do, remember that waiting until full retirement age or beyond guarantees you a higher monthly benefit for life, and if you don't have much in the way of retirement savings, you probably can't afford a hit on benefits. And if the above concerns apply to you, there may be a way to mitigate them without rushing to file for Social Security.
If you're concerned about losing your job, remember that if that does happen, you'll generally be entitled to unemployment benefits that replace a chunk of your paycheck. Thanks to the recently approved stimulus package, all unemployment benefits are getting a $600-a-week boost, so that's money on top of the benefit you would've been entitled to collect. You'll also be eligible for an additional 13 weeks of benefits on top of your state's limit, which generally means 39 weeks of unemployment. As such, that buys you another nine months of not claiming Social Security, and for each month you wait, you avoid a further financial hit.
If you're lacking emergency savings but are still collecting a paycheck, try cutting back on expenses as much as you can. Now's not the time to downsize and move elsewhere, but you can perhaps cut back on a few smaller things (say, replace your weekly restaurant meal deliveries with grocery deliveries, or replace cable for cheaper streaming options and bank the difference).
Another option? Take out a home equity line of credit, if you own property. That may be more feasible than building an emergency fund in the coming weeks, and it will give you access to the money you might need if your job goes away.
Finally, if you're worried about your health, do everything in your power to keep yourself safe. Stay home, and ask younger family members or neighbors to do your food shopping for you if delivery isn't an option (it can be hard to get these days in some parts of the country). Remember, even without a major health crisis at play, it's impossible to predict your own mortality. If you're an otherwise healthy person and haven't been in contact with anyone who has COVID-19, you may very well avoid catching it and go on to enjoy a lengthy retirement -- at which point you could end up struggling financially if you rush to claim benefits and slash them in the process.
To some extent, choosing a Social Security filing age is a perpetual gamble. There's always a chance that you'll decide to wait to claim benefits, only to get suddenly hurt or sick and pass away sooner than expected. But even with a global health crisis, it pays to be positive about your own longevity unless there's a specific medical issue telling you otherwise. As such, you may find that waiting to claim Social Security is a move that serves you well for the remainder of what will hopefully be a very long life.