Should you use Social Security as a lifeline during a pandemic?

Michelle Barron |

From company furloughs, layoffs, company buyout offers, and outright job loss, the financial fallout from the impacts of the coronavirus is widespread and can quickly change a person’s economic outlook. Those over the age of 62 may have an income lifeline with Social Security benefits; should you take it?  

As you probably know, Social Security is a lifetime source of income during retirement. For many, it is the primary source of retirement income. You can begin benefits as early as 62 or as late as age 70. Your payment is calculated based on many different factors, including the age you start claiming. The longer you delay claiming, the more substantial your monthly benefit.

While waiting provides a higher monthly payment, claiming benefits early gives you more monthly payments. Your decision to claim is significant and will have lifelong impacts. Covid-19 may have changed your financial circumstances; nevertheless, the reasons to claim and the strategies for claiming Social Security remain the same.

Cash needs

First off, your cash needs are a huge factor in deciding when to take social security. The once-stable idea of the three-legged stool for retirement income, Social Security, pensions, and savings is increasingly wobbly as fewer people have access to pensions and retirement savings may be lacking. Those who need money might not have any other way to make ends meet but to start to draw Social Security benefits. Conversely, if you can rely on unemployment, severance, and financial resources to cover your cash needs, you should evaluate if delaying Social Security makes sense for you.   

Health and life expectancy

Your health and your life expectancy play another role when making decisions about Social Security. According to the Social Security Administration, the average life expectancy of a 65-year-old male is around 84 years old, it is slightly higher, at 86.5 for a female. Married individuals tend to live longer with one spouse living to an average of age 90. Optimizing Social Security would be easy if you knew exactly how long you would live, yet there is no crystal ball to predict your lifespan.

It would be best if you considered your health, your spouse’s health, and your family’s history of longevity to give you a general guideline. If you expect you will have a shorter life expectancy, starting Social Security benefits sooner may be the better option. If you are in good health and have a family history of longevity, you should consider delaying the benefit.

The future of Social Security 

Most are familiar with the news headlines surrounding the annual reports released by the Social Security Administration that reports on the health of the fund. From time to time, lawmakers have toyed with ideas of possible changes, and at some point, our politicians will be forced to address shortfalls. The 2019 annual report suggests that the trust fund has enough resources to cover retired benefits until 2035. The economic effects of Covid-19 may spur an astonishing number of people claiming benefits early.

Our government may find that they have to make adjustments sooner than expected. If you are skeptical about the future of Social Security or are concerned about possible modifications, including means-testing, you could consider starting benefits early. Many take comfort in heading the advice of a well-known proverb: a bird in the hand is worth two in the bush.

Spousal strategies

Not to add any additional pressure on you, but deciding when to start your Social Security, can have impacts beyond you. If you are married, you should consider strategies that maximize your benefits collectively. Just as you would take age, health, and dollars into account when considering your plan, consider those same factors for your spouse.

When one spouse passes away, the surviving spouse will receive 100% of the late spouse’s benefit if the survivor reached full retirement age. For some, it may make sense for spouses to start Social Security at different times. For example, a couple could start the Social Security of the smaller monthly amount at 62 and let the larger one continue to grow until age 70. In this situation, bigger is better; a more significant Social Security benefit can provide a more substantial survivor benefit.

Effects of employment 

Employment while collecting Social Security throws another monkey wrench in the decision-making process. Employment earnings can reduce your monthly benefit depending upon your age and how much you make. It is also important to note if you start Social Security before your full retirement age, your ability to make adjustments to your request is limited to 12 months from the date you first filed your claim with repayment conditions.

After receiving Social Security for one year, you can’t stop payments until you reach full retirement age, even if your financial situation changes.

Social Security calculations, rules, and strategies are complicated. Determining the timing of when to claim is a big decision with lifelong impacts. Your situation should influence your decision. If your particular circumstance does not dictate the need for income, and you are in good health, delaying Social Security could potentially act as an insurance policy against a long retirement and weak market performance.

Is your head spinning?  We would be happy to help.  Shoot us an e-mail to info@rivercitywealth.com and we'd be happy to talk to you through a complimentary meeting either in-person or through video or phone conference.  

Disclosure:  This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.