COVID-19 has cost millions of Americans their jobs, with approximately 26 million people filing for unemployment benefits over the past five weeks.
All these layoffs might be causing more older workers to retire early, especially because there's no telling just how long it will be before the economy bounces back and jobs are more readily available. In fact, a recent study from the Becker Friedman Institute for Economics found that there has been a spike in the number of discouraged workers who simply stop looking for a new job, which can largely be attributed to unemployed workers choosing to retire early, according to the study.
If you're at least 62 years old, you have the option to begin claiming Social Security benefits. Claiming benefits as early as possible may be a smart move in some situations, but there are disadvantages to this strategy as well. Here's how to decide whether it's the right decision for you.
Claiming benefits early: Pros
One of the biggest advantages of claiming benefits early is that you can start receiving money right away. If you lost your job and are struggling to pay the bills, your Social Security checks can go a long way in easing your financial burden.
In addition, collecting Social Security now can help you withdraw less money from your retirement account, which can be a smart idea. Withdrawing your cash during a stock market downturn can be a dangerous move, because when stock prices are down, you're essentially selling your investments for rock-bottom prices and locking in your losses.
Ideally, you should try to keep your money in your retirement fund for another year or two, or until the stock market bounces back. That can be tough if you're forced to retire early and need the money, but if you can claim Social Security early and depend on those checks to cover the bulk of your expenses, you can minimize your retirement account withdrawals and help your savings last longer.
Claiming benefits early: Cons
There's one significant disadvantage to claiming benefits early, and it's that you'll receive smaller checks each month. Additionally, if you live a longer-than-average lifespan, you may receive less money in benefits over a lifetime by claiming early compared to if you'd delayed benefits.
When you claim before your full retirement age (FRA) -- which is either age 66, 66 and a certain number of months, or 67, depending on the year you were born -- you'll receive smaller checks. If you have a FRA of 67 and you claim at 62, your benefits will be reduced by 30% for the rest of your life.
If you're retiring early due to the coronavirus pandemic, you may not have as much saved for retirement as you would have liked. You may be left to depend solely on Social Security if your savings run dry a few years into retirement, and it could be challenging to survive on these smaller checks.
Also, keep in mind that while theoretically you'll receive the same amount in lifetime benefits no matter when you claim (you'll either receive smaller checks but more of them, or bigger but fewer checks), this is assuming you live an average lifespan -- or around 85 years, according to the Social Security Administration. If you live longer than that, you could actually collect more over a lifetime by delaying benefits. And if you run out of savings later in life, you may want those bigger checks.
Which option should you choose?
Deciding when to claim benefits is a personal choice, and the right decision will depend on your unique situation. If you desperately need the cash now and want to stretch your retirement savings as much as possible, claiming early might be a smart move. But if you can afford to wait and think the bigger checks will be more useful down the road, delaying benefits might be your best bet. Just be sure you've thought about your options and weighed the advantages and disadvantages of each to ensure you're making the best decision for your money.