Unemployment rates are rising, and retirement savings are dwindling. Should older individuals file for Social Security benefits before reaching their full retirement age of 66 or 67?
With job opportunities scarce and unemployment lines stretching far, it’s a tough time, especially for those nearing retirement. If you find yourself newly unemployed, the outlook may appear grim.
Your retirement savings may have decreased significantly, leaving many in their final working years scrambling for solutions. Filing for Social Security benefits early could seem like a quick fix, particularly for those aged 62 to 66. However, this decision carries weighty implications for your financial future.
Six crucial considerations before claiming Social Security early
Your choices in your early 60s can shape your financial security for decades. This isn’t just about today; it’s about your income in your 80s, 90s, and beyond.
- Claiming at age 62 could mean losing up to 30% of your monthly benefit. Is it wise to file early if it locks you into a lower income for life? Many women regret this choice later in life.
- To maximize benefits, you need 35 years of work history. Social Security calculates benefits based on your highest 35 earning years. Ensure those years are as lucrative as possible—this often happens later in your career. Review your Social Security statement for your earnings history and projected benefits. (Check www.SSA.gov for details.)
- Career gaps can be compensated for. Many women take breaks from work to raise children or care for family, and current job loss may also be due to external factors. Remember, your highest 35 years don’t have to be consecutive.
- If you wait until your Full Retirement Age, your benefits increase. The Full Retirement Age varies between 66 and 67 depending on your birth year. Delaying your claim can boost your benefits by up to 8% for each year you wait, enhancing your financial comfort in later years.
- Working while receiving benefits can affect your payments. It’s possible to collect Social Security and work, but earning over the set limit (the Earnings Limit Test) may lead to reduced or stopped payments. For instance, in 2020, earning above $18,240 while collecting early benefits results in withholding of payments until reaching Full Retirement Age.
- Reversing an early claim is not easy. There are limited options to change your mind, and they might be financially burdensome.
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- One option is the “do-over.” This must happen within a year of starting benefits, requiring you to repay 100% of the benefits received. Later, you can file again as though you never claimed early.
- The other option involves suspending your reduced payments at Full Retirement Age, allowing them to grow by up to 8% annually until age 70, after which you restart at a higher amount.
Explore alternative financial solutions
In challenging times, it's essential to pause and evaluate all your financial resources before rushing into a Social Security claim.
Remember, the current crisis differs from past ones. Government support and state initiatives have created more resources than ever for those facing income loss. Here are some options:
- Unemployment benefits have been expanded and extended. Employers are encouraged to reinstate workers as soon as possible.
- Most individuals will receive a stimulus check, up to $1,200, from the Federal government to assist during this time.
- You might qualify for personal loans or lines of credit to help while waiting for better employment opportunities.
- If you must access your retirement funds, new rules allow for penalty-free withdrawals and up to 100% access to your savings. Additionally, you can tap into your Roth IRA contributions anytime without penalties or taxes.
Ultimately, take the time to thoroughly understand Social Security and the repercussions of filing early. Explore every available financial avenue during this challenging time, and strive to make informed decisions for your immediate and long-term future.
