As the COVID-19 pandemic rages on, many seniors are facing some tough choices. Should they stop providing child care to their grandchildren? Should they take a leave of absence from work for health-preservation reasons? And should they change their retirement plans -- either pull the trigger early or do the opposite?
All of these are very difficult questions, but here's another one you might be grappling with: Should the COVID-19 crisis make you change your Social Security filing strategy?
You might consider filing early
Your Social Security benefits are calculated based on your earnings during your top 35 years of wages, and you're entitled to your full monthly benefit based on that calculation once you reach full retirement age, or FRA. FRA is either 66, 67, or 66 and a certain number of months -- depending on your year of birth.
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Meanwhile, you're allowed to start collecting Social Security once you turn 62, but if you go that route, you'll reduce your benefit substantially (specifically, by 6.67% a year for the first three years you file early and then by 5% a year for each year after). If you're 62 right now and your FRA is therefore 66 and eight months, you'll shrink your monthly benefit by almost 30% by claiming right now.
But if you're out of work and having a hard time making ends meet, it pays to claim your benefits early, even if that means reducing them on a permanent basis. If you fall back on credit cards to pay your bills in an effort to leave your benefits alone, the damage you cause yourself financially might well outweigh the damage you'll cause by shrinking your monthly Social Security income.
Claiming Social Security early might also allow you to leave your retirement savings alone while you ride out the pandemic. Many retirement plans lost value earlier this year when the stock market tanked. If yours hasn't fully recovered, filing for benefits could help you avoid permanent losses.
You might hold off on filing for benefits
On the other hand, the pandemic might cause you to go in the opposite direction and delay your Social Security filing. The upside of doing so is that for each year you hold off on claiming benefits past FRA, they go up by 8%, and that boost remains in effect for the rest of your life.
If your retirement savings have taken a major hit but you're able to continue working, you might consider waiting on Social Security as long as possible, as growing your benefits could compensate for a lower IRA or 401(k) balance. Even if your retirement plan isn't down all that much at this point (many plans have recovered pretty nicely since the stock market crash earlier this year), we don't know if a second stock market tumble is in store for the latter part of the year. And if your savings lose value at that point, a higher Social Security benefit can help make up for it.
Also, if you're out of work right now, and therefore aren't able to contribute to your retirement savings because you're barely getting by on unemployment, delaying benefits is, once again, a good way to make up for that income shortfall.
Should you change your Social Security plans?
If you've been impacted financially by the pandemic, then you might need to change your approach to Social Security. And that's OK. While it's good to make a plan and stick it to, when circumstances change, it's important to be flexible. The most important thing to do in light of the pandemic is to use Social Security to your financial advantage, whether that means claiming benefits ahead of schedule or delaying them longer than you may have initially intended.
