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I've Lost My Job to COVID-19. Should I Claim Social Security Right Away?

By Maurie Backman – Apr 19, 2020 at 9:18AM

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Millions of Americans are out of work because of the pandemic. If you're older, you may be eligible to sign up for Social Security -- but is that the right move?

Ever since COVID-19 took hold in the U.S., millions of Americans have lost their jobs, and seniors are no exception. If you're 62 or older and are suddenly out of work, you may be wondering whether it pays to file for Social Security benefits. That way, you get some money coming in to pay your bills while you look for work, or, if your layoff is temporary, wait out the ongoing crisis. But while Social Security income could come in handy in a situation like this, you could also face some long-term repercussions by rushing to file for benefits immediately.

Your filing age matters

Your Social Security benefits are determined based on your earnings history -- specifically, your wages during your highest-paid 35 years in the workforce. But you're only entitled to your full monthly benefit based on your earnings record once you reach full retirement age, or FRA. That age is either 66, 67, or somewhere in between, depending on your year of birth.

Meanwhile, you're allowed to sign up for Social Security as early as age 62, but for each month you file for benefits ahead of FRA, they get reduced by a certain percentage. And that reduction could remain in effect for the rest of your life if you're not careful.

Closeup of older man with concerned expression resting fist on chin


So what should you do if you're out of work and eligible for Social Security? Should you take the hit on benefits and get the money you need to pay near-term bills, or hold off on filing to avoid a reduction in benefits?

The answer really boils down to what your total financial picture looks like. If you expect your layoff to be temporary and have enough emergency savings to tide yourself over for a number of months, then you may be able to keep up with your expenses without claiming Social Security, especially if you're collecting unemployment benefits, which are now eligible for a $600 weekly boost thanks to the COVID-19 relief package passed in late March. The same holds true if you're able to take an IRA or 401(k) withdrawal without losing money -- say, you have a chunk of your portfolio in cash and bonds that hasn't been affected by the recent stock market downturn.

On the other hand, if you don't have emergency savings to tap, and you're not in a good position to withdraw from a retirement plan, then you're better off claiming Social Security early than falling behind on your bills and putting your finances (and, potentially, your health) at risk.

Furthermore, if your jobless situation really is only temporary, and you expect to be gainfully employed once the economy opens back up, there is the option to sign up for Social Security but then undo your filing within a year. If you withdraw your application for benefits within 12 months of filing and also manage to repay the Social Security Administration all of the money it paid you, you'll get the option to file again at a later point in time and avoid a lifelong reduction in monthly benefits.

Here's how that could work: Imagine you're 62 and are therefore eligible for Social Security, but nowhere close to FRA. If you claim benefits now, collect them for four months, but then get hired again at your job during the latter part of the summer, you can start saving part of your income aggressively so you're in a position to repay that four months of benefits within a year and undo your Social Security filing.

Of course, there's a risk in banking on a do-over. If your financial circumstances don't change and the economy takes longer than expected to recover, you'll be stuck with a lower monthly Social Security benefit for life. But if you're really desperate for money, Social Security could be your lifeline during the ongoing crisis.

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