As businesses reopen and Americans start going back to work, the unemployment rate has dropped from nearly 15% in April to just over 11% in June, according to the Bureau of Labor Statistics.
However, as workers return to their jobs, the number of COVID-19 cases has skyrocketed. In just the first two weeks of July, the U.S. has seen roughly 50,000 new infections each day -- compared to approximately 30,000 new cases per day back in April during the peak of the pandemic.
More cases of COVID-19 could cause businesses to close again, which may lead to more layoffs. If you're close to retirement age, losing your job could wreck your retirement plans. But if worse comes to worse and you find yourself unemployed later in life, there's one good reason to consider claiming Social Security benefits as early as possible.
Claiming early can pay off later
Claiming Social Security early means filing for benefits before your full retirement age (FRA) -- which is age 67 for those born in 1960 or later, or either 66 or 66 and a few months for those born before 1960. The earliest you can begin claiming is age 62, and sometimes claiming as early as possible can be a smart move.
If you lose your job in your early 60s and can't find another, you may need to start withdrawing money from your retirement fund to make ends meet. But withdrawing your savings during a recession can be risky, especially if another stock market crash is on the way -- which could be possible if businesses have to shut down once again.
Withdrawing your savings during a market downturn means selling your investments when stock prices are lower. Because you don't technically lose any money until you sell, withdrawing when prices are low means you're locking in your losses. For that reason, it's best to avoid taking money from your retirement fund as much as possible when the market is down.
By claiming Social Security benefits early, you'll have a little more cash to pay the bills -- making it easier to withdraw less from your retirement fund. The more money you leave in your retirement account, the more it will be able to grow as the market recovers and the longer it will last. And if you're forced into early retirement, you'll need your savings to last as long as possible.
One thing to keep in mind, too, is that you can continue to work even after claiming benefits. If you claim before your FRA, your checks could be temporarily reduced depending on how much you're earning. But then once you reach your FRA, the Social Security Administration will recalculate your benefit amount and you'll start earning bigger checks. So if you claim early but then find another job later, you can work and collect benefits at the same time.
The downsides to claiming early
Claiming benefits early can help your retirement savings last longer, but there are drawbacks to this approach too. The biggest downside of claiming early is that your benefits will be reduced for every month you file before your FRA.
If you have an FRA of 67 years old and you claim at age 62, for example, your checks will be permanently reduced by 30%. By waiting until your FRA to claim, you'll receive 100% of the benefit amount you're entitled to. Delay benefits past that age, and you'll receive an additional 8% per year up to age 70.
Delaying benefits could be a wise move if you expect to live a very long time. Because Social Security benefits are for life, you'll continue receiving checks even after your retirement fund runs dry. The average American's lifespan is around 79 years, according to the Centers for Disease Control and Prevention, so if you have reason to believe you'll live longer than that, those bigger checks could go a long way.
On the other hand, not everyone can afford to wait until their late 60s or age 70 to begin claiming benefits. If you'd have to drain your retirement fund in order to delay benefits, waiting to claim may not be in your best interest.
You can also check your future benefit amount by creating a mySocialSecurity account online. This will give you an idea of how much you can expect to receive at your FRA based on your real earnings. From there, you can determine whether the boost you'll receive by delaying benefits is worth it or if it's better to claim benefits earlier.
Which option is right for you?
These are unprecedented times, which means you may need to be flexible with your retirement plans. If you lose your job unexpectedly, claiming benefits early can help your savings last as long as possible. Just be sure you've considered all your options and are making the best choice for your situation.