Will COVID-19 Change Your Social Security Strategy?


As the COVID-19 pandemic rages on, many older people face difficult choices. Should they stop providing child care to their grandchildren? Should they take time off work for health reasons? And should they change their retirement plans – either pull the trigger early or do the opposite?

These are all very difficult questions, but here’s another one you might struggle with: If the COVID-19 crisis forces you to change your Social Security ranking strategy?

You might consider depositing early

Your Social Security benefits are calculated based on your earnings during your best 35 years of salary, and you are entitled to your full monthly benefit based on this calculation once you reach full retirement age, or FRA. FRA is either 66, 67 or 66 and a number of months – depending on your year of birth.

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During this time, you are allowed to start collecting Social Security once you are 62, but if you go this route you will significantly reduce your benefits (in particular, by 6.67% per annum during the first three years of your advance declaration, then 5% per year for each subsequent year). If you are 62 right now and therefore your FRA is 66 and eight months, you will reduce your monthly allowance by almost 30% by claiming now.

But if you don’t have a job and are struggling to make ends meet, it pays to claim your benefits earlier, even if it means reducing them permanently. If you rely on credit cards to pay your bills so as not to touch your benefits, the damage you do to yourself financially may well outweigh the damage you cause by reducing your monthly Social Security income. .

Applying for social security early may also allow you to leave your Pension saving alone while you overcome the pandemic. Many pension plans lost value earlier this year when the stock market fell. If yours has not fully recovered, claiming benefits may help you avoid permanent losses.

You could delay filing your benefit claims

On the other hand, the pandemic could make you go in the opposite direction and delay your social security declaration. The advantage of doing this is that for each year that you give up claiming benefits after FRA, they increase by 8%, and that increase remains in effect for the rest of your life.

If your retirement savings have been hit hard but you are able to continue working, you may consider waiting for Social Security as long as possible, as increasing your benefits could offset an IRA or 401 (k) balance. ) inferior. While your retirement plan isn’t that much down at this point (many plans have recovered pretty well since the stock market crash earlier this year), we don’t know if a second stock market crash is in store for. the latter part of the year. And if your savings lose value at this point, a higher Social Security benefit can help offset it.

In addition, if you are currently unemployed and therefore cannot contribute to your retirement savings because you can barely cope with unemployment, deferral of benefits is, again, a good way to compensate for this income. miss to win.

Should You Change Your Social Security Plans?

If you have been financially affected by the pandemic, you may need to change your approach to Social Security. And that’s OK. While it’s good to make a plan and stick to it, 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 it means claiming benefits earlier than expected or delaying them longer than you might have originally had. planned.

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