The choice of when to claim Social Security benefits is an important one that can profoundly impact your financial security in retirement. While there are many different considerations that go into a claiming strategy, the data is clear that more people tend to start their benefits during recessions.
And that makes a lot of sense. When the economy is doing poorly, people lose their jobs and are forced into starting their benefits (if they're 62 or older and meet the necessary eligibility requirements).
Claiming Social Security during a recession isn't always the right choice. There is, however, one situation where starting your benefits virtually always makes sense -- and if you find yourself in that position, you should strongly consider signing up to get your Social Security checks ASAP.
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The best reason to claim Social Security benefits during a recession
The single best reason to claim your Social Security benefits during a recession is if doing so would prevent you from depleting your retirement savings account too quickly.
For most seniors, Social Security alone simply does not provide enough income to live on (nor was it ever intended to). You must get money from investment accounts to supplement it (unless, of course, you have a pension or other income sources). And you need to make sure those investment accounts have enough money in them that you can keep earning sufficient returns and avoid running out of funds during the remainder of your lifetime.
Unfortunately, taking out too much money from your retirement accounts -- especially early on -- could deplete your nest egg to a dangerously low level so what's left doesn't earn sufficient interest. And that can happen really easily -- most experts recommend keeping withdrawals at just 4% of your investment account balance (or less) in your first year of retirement and increasing the rate you withdraw only to keep pace with inflation in subsequent years.
If you find you'd have to take out too much from your retirement accounts unless you have supplementary income from Social Security -- and you have no option to avoid this -- then you should start getting your benefits to preserve your nest egg.
That's not a decision to take lightly, though. Claiming your Social Security benefits any time before age 70 would mean missing out on delayed retirement credits, which can be earned after full retirement age and which raise your benefits by two-thirds of 1% monthly (8% annually). And if you haven't yet reached full retirement age, it also means you'll face early filing penalties that reduce benefits by five-ninths of 1% per month for each of the first three years (6.7% annually) and an additional five-twelfths of 1% per month for any month before that (an additional 5% per year).
Try other tactics before claiming Social Security early
If you can find a way around claiming Social Security retirement benefits early, it's always best to do it.
If you've lost your job due to COVID-19 or the 2020 recession resulting from it, consider claiming unemployment benefits and looking for work that would enable you to wait. Or if your investment balance has taken a hit and isn't producing enough income to live on at a safe withdrawal rate, consider a part-time gig or budget cuts if either would enable you to wait to claim your benefits.
If none of these tactics work, however, and you're worried that you're taking too much out of your retirement accounts during the economic downturn, claiming your Social Security and taking the hit can definitely be better than draining your accounts and having nothing left in them in your later years.
