April 21, 2019 — Deciding when to take Social Security retirement benefits is always a complex question. Now the devastating impact of Coronavirus is making it even harder. Here are some thoughts that might help on a question that always has many possible answers.
The New York Times reports in “Taking Social Security During the Pandemic” that workers in the past decade have shown a steady trend of postponing when they take Social Security, as a way to increase their potential lifetime retirement benefits. Whereas most workers still take Social Security the first chance they get at age 62, to get higher benefits more and more have been waiting to their Full Retirement Age (66-67), or even to age 70. With the arrival of the coronavirus pandemic experts are wondering if that trend will stop, or even reverse itself.
The obvious result of the coronavirus is that working people over 62 who have not yet claimed lose their jobs, or are faced with a devastating loss of income. Or, that those who planned to live off their retirement portfolios instead of claiming early see market declines that make that impossible. People in these situations might feel that they have no choice but to forget about their decision to postpone, and claim take their benefits now.
A positive trend in trouble?
In 2008 some 53% of people claiming did so at age 62, but by 2018 that had declined to 35%, a very significant change. Claiming at age 62 results in a benefit that is 72% of the Full Retirement Age benefit (age 66-67, depending on birth year). Those who wait until age 70 to claim get a hard to beat 8% annual increase for each year beyond Full Retirement Age. The fear is the economic hardships caused by the pandemic will leave people with no choice but to take their benefits now. While that might help solve a short term problem, as they enter their 80s or even 90s those reduced benefits could cause real economic hardship.
Someone who is debating whether to tap retirement savings and postpone Social Security, or take the benefit now has a lot of financial Jiu Jitsu to go through. On the one hand, if you have lost your job and have a reduced income, it might be a very good time to take money out of your retirement account (in fact you might have no other choice). Reduced income means your tax rate will be low and you might not have to pay much in taxes. On the other hand, if you take it now it won’t be there in your later years, or for your heirs to inherit. And, taking out money in a down market eliminates the possibility of waiting for the market to come back up again. Another possibility that couples have is to have one person claim now to get some income, and the other, ideally the one with the higher earnings record, wait until age 70.
Delaying has it benefits – if you can wait
The Times uses an example created by William Meyer, co-founder of Social Security Solutions. He uses a theoretical couple with a combined Full Retirement benefit of $3,900. They would give up $59,000 in benefits by applying at age 62 vs. their Full Retirement Ages, and $275,000 if they had waited until age 70. Of course this assumes that at least one person in the couple lives to a ripe old age.
Bottom line. There is no magic answer to the Social Security claiming question for everyone. Your life expectancy and immediate need for money have a big impact on that. We urge you to carefully consider your decision to claim, relying on your judgement and the best advice you can get. The Times article and the articles below have more detail about your options and the pros and cons.
For further reading: