The coronavirus pandemic has turned the world upside down, and there's a good chance it's also affected your retirement plans. Especially if we're heading toward a second wave, it's wise to start thinking about how COVID-19 could change your Social Security strategy.
Choosing when to file for benefits is a big decision that will affect the rest of your retirement, so it's important to have a plan in place for when you want to claim. And there are a few ways COVID-19 could affect the age you should begin claiming benefits.
1. Benefit reductions could make it smart to delay claiming
The Social Security Administration (SSA) is currently facing a cash shortage. The money from payroll taxes isn't enough to fully fund benefits, so the SSA has had to tap its two trust funds to bridge the gap. However, those trust funds are expected to run dry by 2035, at which point the SSA may need to cut benefits by nearly 25%.
Due to the coronavirus pandemic, though, there are tens of millions of people who are unemployed and no longer paying payroll taxes. That means the SSA has less than expected to pay out in benefits, and it could have to take more from its trust funds -- resulting in those funds being depleted sooner than predicted, unless Congress comes up with a solution soon.
Because benefits could be reduced in the relatively near future, you may want to consider waiting a little longer to begin claiming. The longer you wait to file for benefits (up to age 70), the more you'll receive each month. So by delaying benefits, you can help protect yourself against future cuts.
2. You may consider claiming early if you lose your job
More than 45 million Americans have filed for unemployment benefits at some point during the pandemic, and a second wave of COVID-19 could result in a lot more layoffs.
If you lose your job later in life, it might be challenging to find another one before you retire. You become eligible to start claiming Social Security benefits at age 62, so if you're having a hard time finding a job and making ends meet, you may choose to file for benefits as soon as possible to start bringing in extra cash.
Even if you're not quite ready to retire, claiming early can still sometimes be a smart decision. You're allowed to continue working even after you start claiming benefits, so if you begin claiming but a year or two down the road you find a new job, that's okay. Your Social Security checks may be temporarily reduced depending on how much you're earning at your job, but once you reach your full retirement age, they'll be adjusted to account for any money that was withheld.
3. You could either claim early or delay benefits if your savings take a hit
Earlier this year, you probably watched your retirement investments take a turn for the worse as the stock market plummeted. Although the market has bounced back remarkably quickly, a second wave of COVID-19 could trigger another downturn.
Claiming early could be a wise move in some instances because it allows you to withdraw less from your retirement account. Withdrawing your savings during a market downturn can be dangerous, because you're selling when stock prices are lower -- thus locking in your losses. If you're retiring early and need income, Social Security benefits can help keep as much money as possible in your retirement fund.
On the other hand, if a market downturn wipes out your savings, delaying benefits can permanently boost your monthly income. Holding off on filing for Social Security until age 70 can result in hundreds of dollars more per month compared to if you'd claimed earlier, and if you know you won't be able to rely much on your savings, those bigger monthly checks can go a long way.
COVID-19 has forced many older workers to rethink what retirement may look like, and it could also affect your plans for Social Security. By coming up with a strategy now, you can head into your senior years as prepared as possible, even if the future is uncertain.