When to Take Social Security – Practical Advice for Retiring in a Pandemic

Seniors retiring into the COVID-19 economy are finding newfound appreciation for their monthly Social Security checks. The program that provides direct monthly payments to retirees is probably the most popular and successful government program in American history. The monthly payment system may not be perfect, but it does provide a third of all income in elderly households. It also accounts for 90% or more of income for 21% of married beneficiaries and 45% of unmarried retirees. Whether you like Social Security or love it, the program likely plays a vital role in your retirement plans.


The average monthly Social Security benefit is $1,503, which works out to about $18,000 a year per retiree. This benefit is giving retirees peace of mind at a time when the stock market fell nearly 32% in five weeks, and a viral outbreak put 51 million Americans out of work. Whether the benefit is used to slow down a retiree’s need to sell off 401(k) holdings or provides the money needed to live a dignified life after an unexpected job loss, Social Security is a welcome source of calm in a time of unease. If COVID-19 has you gritting your teeth and rethinking your retirement plans, you need to know about Social Security and how it supports your retirement plans during a pandemic.


How Social Security Benefits are Calculated


Your Social Security check size depends on three factors – your birth year, income history, and age that you claim benefits. Retirees can accept a reduced Social Security payment by claiming benefits as soon as their 62nd birthday. They can also supercharge their check by taking benefits at age 70. If you are concerned that COVID-19 is going to wipe out your retirement savings, understanding what you can do to boost your retirement benefits is critical.


How Birth Year Affects Your Retirement


Your “full retirement age” (FRA) depends on your birth year and is the age that you qualify for full Social Security benefits. Most people approaching retirement right now have an FRA of somewhere between 65 and 67. Those born between 1951-1954 reach their FRA at 66. People born in 1955 hit their FRA at 66 and 2 months, while those born in 1956 reach FRA at 66 and 4 months. The FRA increases by two months for each additional birth year until it reaches 1960 and later. Those retirees achieve their FRA at age 67.


Those retiring between age 62 and their FRA will experience a benefit cut that is based on the number of months Social Security is claimed before the FRA is reached. For example, a 66-year-old who claimed Social Security benefits at 62 would only get 75% of their full check. Had they waited until they turned 65, they would have received 93.3% of the ordinary compensation. Social Security calculates the reduction rate on a monthly basis. Waiting even a few months to claim your retirement benefits can have a favorable impact on your payment. 


Salary History Matters


Monthly Social Security benefits are calculated by considering your wages from your highest 35 earning years. Every year you did not work is factored in as $0, so a surefire way to boost your cash flow is to work a few extra years to replace lower-paid or $0 years with higher income years. The average benefit may only be $1,503, but the maximum benefit is $3,790 a month


When You Claim Benefits


Soon-to-be-retirees working in jobs they enjoy may want to rethink any plans to take Social Security benefits before their full retirement age. Good things typically come to those who wait, and that is particularly true with Social Security benefits! Retirees waiting past their full retirement age can claim Medicare and delay claiming their Social Security benefits until they reach age 70 to boost their monthly payments. This “delayed retirement credit” causes profound impacts on a retirees’ income. For someone whose FRA was 66, delaying Social Security until age 68 would mean getting checks that were 116% of their “full” retirement amount. Retirees waiting until 70 increase their monthly payment by 132%. 


Coronavirus and Benefits


The math surrounding Social Security rewards those who wait with bigger checks. If you are retiring with a smaller nest egg and feel safe at your job, working an extra year or two can pay off big time. Delaying is a particularly sound decision if you are in good health; your family has a history of longevity or a higher-earning spouse. 


The added income will be a nice boost to your retirement savings, and you keep receiving the increased retirement payments for the rest of your life. Use the time you spend to adjust to your post-retirement budget and set up a bond or CD ladder to give your retirement accounts enough time to recover from whatever surprises may be in store for 2020 and 2021.



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