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Should Unemployed Seniors Claim Social Security Benefits Early?

May 5, 2020 | Elder Law & Special Needs

Unemployment has reached record highs during the COVID-19 pandemic. Seniors who lose their jobs may be tempted to claim Social Security benefits early, but should they? Given the reduction in future benefits that result from filing a claim early, the answer will depend upon your circumstances. Some people may be able to file an early claim and not sacrifice much in terms of future benefits.  

While you can claim Social Security benefits as early as age 62, the better financial decision is usually to wait to take benefits as long as you are able. If you take Social Security between age 62 and your full retirement age, your benefits will be permanently reduced to account for the longer period you will be paid. Individuals who file at age 62 this year stand to receive only 72 percent of their full retirement benefit. On the other hand, if you delay taking retirement beyond your full retirement age, depending on when you were born, your benefit will increase by 6 to 8 percent for every year that you delay, in addition to any cost of living increases. This extra income could be very welcome, especially if you live into your 80s or beyond.

Unfortunately, many seniors who lose their job due to the Covid-19 pandemic may find it necessary to apply for benefits early, potentially losing hundreds of thousands in future benefits. Before rushing to apply for early retirement benefits, you should consider all of your options. If you are lucky enough to have substantial savings, it may make sense to spend your savings rather than take benefits early. Some unemployed seniors may also be able to apply for unemployment insurance benefits (which have increased significantly under recent legislation in most states) to allow you to further delay taking benefits. 

If you do not have any savings or unemployment benefits to fall back on, your only option may be to claim benefits. However, if you do claim early and then go back to work, you may have the ability to increase those benefits. If you are able to stop the benefits within 12 months of starting, you can withdraw the application, repay the benefits collected, and then still be eligible for the higher benefit amount at full retirement age or older. It is essentially a one-year interest-free loan.

If you take benefits early but are not able to stop the benefits within 12 months of starting, you can still suspend your benefits in order to earn higher benefits. For example, if you start collecting at age 62 but no longer need the income once you reach your full retirement age, you could suspend benefits until age 70. You won’t get a complete do-over, but between your full retirement age and 70 you would earn delayed retirement credits, which would increase your ultimate benefit amount when you collect at age 70. 

For many seniors considering whether or not to claim Social Security benefits early, the best course of action would be to consult with a financial advisor who can run a report using special software that will demonstrate the change in benefit amount depending upon the date of filing. The New York Times as also recently published an article about taking benefits early, which can be accessed at this link.


Written by Brad Sperr
Brad focuses on explaining complex topics in Estate Planning, Elder Law, Special Needs, and Probate matters in a way that is approachable and understandable.
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