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The Coronavirus May Force Seniors Into an Unwanted Social Security Decision

By Sean Williams – Apr 11, 2020 at 6:06AM

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Doing this could wind up costing retired workers tens of thousands of dollars in future benefits.

There's little question that the coronavirus disease 2019 (COVID-19) is changing our societal habits. Ideas that seemed almost unimaginable even six weeks ago, such as shutting down nonessential businesses for a month or longer to reduce the spread of this respiratory illness, are now a reality in some states and major cities. But according to the data from Johns Hopkins University, these measures are very much needed.

Through last weekend, nearly 1.1 million worldwide cases of COVID-19 had been reported, with the illness leading to more than 58,000 deaths. Of these confirmed cases, approximately 1 in 4 originated within the United States.

A senior man looking off into the distance, with his chin resting on his hand.

Image source: Getty Images.

The coronavirus might force seniors to claim Social Security benefits earlier than expected

Of course, the coronavirus isn't simply a threat to our physical well-being -- it's also a direct threat to our pocketbooks. And it's not just working-age Americans who could suffer the consequences. Seniors readying to retire could be forced into an unwanted Social Security decision as a direct result of coronavirus mitigation measures.

You see, the closure of nonessential businesses has put a lot of people out of work in a very short period of time. Over the final two weeks of March, nearly 10 million people filed jobless claims, which blows the previous two-week record of closer to 1.4 million jobless claims out of the water. With more job losses to come and little certainty as to when economic activity will return to normal, unemployed workers will need income.

For some, the answer will be unemployment benefits. As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, $260 billion was apportioned to bolster the unemployment program and boost weekly payouts by $600 for the next four months.

But for seniors aged 62 and older with little or no savings, their most viable option might be to claim their Social Security retirement benefit well before they wanted to. That's because older Americans face a potentially uphill battle getting back into the workforce if unemployed.

Even though data from the Bureau of Labor Statistics shows a clear uptick in elderly Americans in the workforce, seniors face a considerably longer wait time to find a job if let go. As of March 2020, the average unemployed worker aged 16 and over waited a mean of 17.5 weeks to land a job.

Comparatively, seniors aged 55 to 64 take an average of 20.9 weeks to snag a job, while those aged 65 and up take 24.5 weeks to find employment. It's especially difficult for women aged 65 and up to find work once unemployed, with the mean duration of unemployment lasting 34.1 weeks (about eight months). 

A person filling out a Social Security benefits application form.

Image source: Getty Images.

Here's why an early claiming decision could be bad news for seniors

While it's reassuring to know that Social Security income awaits those who've paid into the system and earned enough lifetime work credit to qualify for a benefit (40), an earlier-than-expected claim has historically not been a smart move for a majority of eligible recipients.

According to a 2019 report from United Income, which analyzed the Social Security claiming habits of seniors in around 2,000 households and compared those claims to what would have been optimal, nearly all seniors are leaving money on the table. Note, by an "optimal" claim, United Income's analysis was referring to the claiming age that generated the most lifetime income for a beneficiary, and not necessarily the highest monthly income.

The analysis showed that approximately 80% of all seniors claimed their payout at or before age 64, thereby accepting a permanent reduction in their monthly payout (benefits can begin at age 62, or any point thereafter). Yet only a small fraction of retirees actually made an optimal claiming decision by taking their payout early.

By comparison, United Income found that 57% of seniors in the households studied would have collected the most lifetime income if they had waited until age 70 to begin taking their benefit. In fact, the four best ages to claim benefits, where more than 80% of seniors would have maximized their lifetime benefit potential, were (in no particular order) 67, 68, 69, and 70.

In other words, patience usually pays when it comes to Social Security. Therefore, seniors who are forced into an early claim because of the coronavirus may be cheating themselves out of thousands of dollars, or tens of thousands of dollars, in lifetime Social Security benefits.

A senior couple embracing one another.

Image source: Getty Images.

Here's an idea to potentially bridge the coronavirus income crisis

However, there's a middle-ground solution available to some of today's baby boomers that may help put money in their pockets, while at the same time giving them an option to allow their Social Security benefits to grow over time. This solution is Form SSA-521.

Officially, Form SSA-521 is the "Request for Withdrawal of Benefits" application. It allows claimants who began receiving a Social Security benefit within the past 12 months to have their claim request undone. In other words, they would stop receiving a monthly benefit from Social Security -- it would be as if their claim never happened in the first place. This would allow their monthly benefit to continue growing by as much as 8% per year for every year they hold off on claiming it, until age 70.

The catch? Aside from needing the approval of the Social Security Administration, you only have 12 months from the date of first receiving benefits to file Form SSA-521. Also, you'll have to repay every cent you've received in benefits. But the upside is that it could provide you a boost in income for up to one year. That could be the perfect "loan" of sorts to get baby boomers through the unprecedented coronavirus pandemic.

In sum, if you're nearing retirement age and facing a possible income pinch due to COVID-19, keep in mind that you may have more options on the table than you realize.

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