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I'm Out of Work Due to COVID-19. Should I Claim Social Security Early and (Maybe) Undo It Later?

By Maurie Backman – Jul 18, 2020 at 7:36AM

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Filing for your federal retirement benefits early means locking in lower monthly payments for life -- but there is a loophole.

Tens of millions of U.S. workers have lost their jobs due to the COVID-19 pandemic, and unfortunately, older Americans have not been spared from the layoffs. If you're among them, you may be looking ahead to next month, when unemployment benefits are set to drop back to their normal, unenhanced levels, and worrying that you won't be able to cover your bills. And if you're at least 62 years old, that may be leading you to think it might just be time claim Social Security.

Conveniently, if you're eligible for both, you can receive both benefits at once.

Though you won't be entitled to your full monthly Social Security benefit unless you wait to claim at your full retirement age -- which, depending on your birth year lands somewhere between 66 and 67 -- you are allowed to start taking it at 62, albeit at a reduced rate.

But there's an interesting gambit available to seniors. You can undo your filing within a year of claiming Social Security, in which case that reduction in benefits won't be permanent. But while claiming benefits early and then undoing them later if your situation improves might seem like a good solution, there are risks to going this route.

Don't count on being able to repay what you were paid

If you file for Social Security early and then change your mind within 12 months, you can undo your claim. This will allow you to file again at a later point in time -- and get the higher monthly checks that will entail. If it's possible for you to go back to work within that first year, this may appeal.

But doing this also requires you to pay back every dollar you received from the program before those 12 months are up -- in cash. (Credit cards not accepted.) If you're not in a position to do that, you risk getting stuck with that original reduced benefit throughout your retirement.

Older man with serious expression staring at laptop

Image source: Getty Images.

An extraordinary number of people are out of work right now due to the COVID-19 pandemic, and it's clear based on the massive ongoing surges in new cases that this country isn't going to get the coronavirus under control anytime soon. This means that its economic impacts are likely to persist, so if you're jobless now, there's a good chance you'll stay that way for the rest of the year and possibly beyond. In that case, getting yourself into a position where you can afford to stop taking Social Security and repay the benefits you collected may not be feasible in time for you to use this technique.

Furthermore, as alluded to above, Americans on unemployment now are getting a $600 weekly boost from Washington on top of their normal, state-managed benefits. Those extra payments are set to stop at the end of July, and lawmakers in Congress haven't yet agreed to extend them -- and they may not. If you're forced to remain on unemployment for the foreseeable future, that means you're likely to be collecting much less money than you're getting at present, which could make repaying your Social Security benefits that much more difficult.

Then again, the fact that the CARES Act boost may be going away could be reason enough to file early for Social Security anyway, regardless.

While you may not want to accept reduced retirement benefits for life, you also might find yourself backed into a corner, financially speaking. It's an unfortunate situation, and one you would be far from alone in. But you are better off filing for Social Security early and being able to pay your bills than falling behind, racking up debt, and wrecking your finances for many years to come.

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