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Be Careful With This Social Security Move for the Unemployed

By Katie Brockman – Aug 11, 2020 at 12:02PM

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It may sound like a good idea on the surface, but it could potentially be dangerous.

With tens of millions of Americans still unemployed and the extra $600 per week in unemployment benefits having run out at the end of July, many struggling workers may be looking for extra cash any way they can get it.

If you're at least 62 years old and entitled to Social Security benefits, you may decide to begin claiming early even if you hadn't planned on retiring just yet. Claiming early will result in smaller checks, though, which may spell trouble for your retirement plans, especially if you're struggling to save and will likely depend on your benefits for a significant portion of your income in retirement.

However, there's one Social Security tactic that may help you make ends meet now while still maximizing your benefits later. While it can be helpful to some, it can be incredibly dangerous to others.

Social Security card with assorted bills.

Image source: Getty Images.

Claim strategically to make the most of your benefits

In general, your benefit amount is locked in for life once you begin claiming. If you claim before your full retirement age (FRA), your benefits will be reduced, and you'll receive smaller checks for the rest of your life. But if you delay claiming benefits until after your FRA, you'll receive bigger checks each month.

There's one rule, however, that allows you to reverse your claiming decision. Once you start claiming, you're allowed one do-over if you change your mind and want to hold off on receiving benefits. There are two major caveats, though: You have to withdraw your application within 12 months of claiming, and you also need to pay back all the benefits you've already received.

If you're currently unemployed and are considering claiming benefits early for the extra cash, you may be tempted to claim now and then withdraw your application within a year. On the surface, that seems to be the best of both worlds. Not only will you receive some money now to help get through these tough times, but if you find another job within the next year, you can reverse your decision and then wait a few more years to begin claiming, thus boosting your benefit amount.

The dangerous side of this approach

While this strategy may work for some people, pulling it off successfully depends on several factors. First, you have to be sure you'll find a job within the next year. Nobody knows how long this pandemic will last, and if the number of COVID-19 cases continues to rise, there's a chance the employment situation won't improve much in the next 12 months. If that happens and you find yourself still unemployed after a year, you may not be able to afford to change your mind on Social Security.

Another factor to consider is that you'll have to repay all the benefits you've collected if you withdraw your application. If you're claiming benefits because you desperately need the money, you may not be able to pay that money back later even if you do find another job.

Lastly, you'll need to seriously consider whether you'll even want to give up your benefits in a year. Collecting Social Security benefits while you're not working can feel an awful lot like retirement, and it's easy to get used to the retirement lifestyle. After a year, you may decide that you simply don't want to go back to work. That isn't necessarily a bad thing, but it does mean you'll be stuck with smaller checks each month if you don't withdraw your Social Security application like you'd planned.

Is this move the right option for you?

If you've given it careful consideration, this strategic approach to Social Security could be a smart move. However, in many cases, it could end up doing more harm than good.

Before you claim benefits early, make sure you've thought about how it will affect your retirement plans, and consider whether the short-term benefits of claiming now outweigh the fact that you'll receive smaller checks. If they do, claiming early may be the right choice for you. Otherwise, holding off on filing for benefits may be your best bet.

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