During these tumultuous times of COVID-19, many older workers are uncertain about their financial future.
Due to rising unemployment, volatile markets, and just the overall fear of COVID, questions about Social Security have come up frequently. Older workers, at least 62 years old, are beginning to consider claiming their Social Security early. In this blog post, we’ll cover the best retirement age (based on your financial goals), whether or not your social security benefits should be accessed early, and what a normal retirement looks like.
What is the best retirement age?
Honing in on a retirement age that is best is different for every person. The Social Security Administration defines full retirement as “normal retirement age” which was 65 for many years. In 1983, Congress passed a law to incrementally raise the age due to individuals living longer and being healthier in their older years.
If you are 62 years old, you have the option to begin claiming Social Security benefits. Claiming benefits this early may make sense in some situations, but there are some extreme disadvantages as well.
In addition, once a decision is made to begin your benefits, Social Security doesn’t give you a lot of flexibility to change and your mistake will be permanent. Factoring this risk is essential in deciding whether or not you should take your Social Security early due to the pandemic.
If you are planning to begin claiming your Social Security benefits early at age 62, it’s important that you understand that your benefits will be reduced by up to 25%. This reduction is permanent. Every additional year you wait will decrease the percentage reduction until you reach full retirement age—typically 66 or 67—and you will receive 100% of benefits earned.
Postpone claiming your benefits until age 70 and you will get a boost of 8% for each year your wait past your full retirement age. This is HUUUUUUGE over time.
What are the benefits of claiming early?
The biggest advantage to claiming your benefits early is that you will begin receiving money immediately. Obviously, if you have lost your job, have little savings, and are struggling to pay your bills, you might have no other choice but to begin claiming. In turn, this will temporarily ease your financial burden.
In addition, if you have limited savings, social security will help them last longer and help you to withdraw less of those dollars in the early years. This might be a smart idea if your retirement savings have been exposed to the market which has recently declined in value.
What would be the downfall of claiming early?
The biggest disadvantage to claiming early is that your payments will be smaller every month, and they will be permanent. You might think that it’s not a big deal in the beginning, however, over time the difference is huge. In addition, if you include a spouse’s benefit into the mix, the difference could be upwards of hundreds of thousands of dollars over time.
If you are retiring early (before your full retirement age) due to COVID, and have limited savings, it can become challenging to survive over time especially if your savings run dry. This can become an even bigger problem for spouses. Remember, if you were to pass away, your spouse will only maintain the larger of the two benefits which could very well be an already reduced monthly benefit.
So, What Should You Do?
Making a decision about your retirement and Social Security benefits can be stressful. For many people, simply talking through the options can help. However, quite often people seek the advice of their neighbors and make the wrong choice. Additionally, political forces will often be part of the decision making process.
If you have NO OTHER CHOICE, claiming only could be your only move. But if you can find a way to delay claiming your benefits as long as possible and in turn receive a bigger check especially down the road, delaying is the best decision.