As more than 16 million Americans have lost their jobs in the last three weeks, many have scrambled to apply for unemployment insurance to help cover their expenses.
And some workers age 62 and up may also consider tapping another source: Social Security retirement benefits.
During the financial crisis, more people decided to file for benefits early at 62 to replenish lost income, according to the Center for Retirement Research at Boston College. In 2009, about 42.4% of 62-year-olds started receiving benefits, up from 37.6% in 2008.
Taking retirement benefits at the first possible opportunity will result in smaller monthly checks for the rest of your life. If you wait until your full retirement age – 66 or 67, depending on the year in which you were born – you will get 100% of your earned benefits. Plus, for every year you postpone benefits until age 70, those checks will be even larger.
That deal has only gotten better as interest rates have gone down and payouts from private annuities have also declined, said David Blanchett, head of retirement research at Morningstar.
“Today, right now, trying to really focus on delaying Social Security is a really smart move for folks at retirement,” Blanchett said.
Still, if your income has dropped suddenly, starting your benefits may be a safety net.
Here are the big questions to ponder before you claim.
Can I receive both unemployment and Social Security?
The answer is yes. Generally, unemployment insurance doesn’t count Social Security retirement benefits in its income calculations, said Demetra Nightingale, institute fellow at the Urban Institute, a nonpartisan think tank. Other sources of income, such as annuities or investment income, also typically don’t count.
But whether you qualify for unemployment depends on the rules of your state.
“As long as they’re eligible under the state rules … then they would qualify,” Nightingale said.
Some states previously had Social Security offsets, which meant they would reduce unemployment benefits when someone is also receiving Social Security. But those rules have largely been repealed, according to the National Employment Law Project.
Of note, if you are receiving Social Security disability benefits, it means you are too disabled to work and therefore ineligible for unemployment benefits, said Gary Burtless, senior fellow in economic studies at the Brookings Institution, a think tank.
What if I change my mind or my circumstances shift?
If you decide to claim benefits now, there are a couple of ways you may be able to adjust your strategy later if your circumstances change.
If you start receiving checks now and later change your mind, you have up to one year to withdraw your application.
There are restrictions, however. For example, you cannot do this 12 months after you made your decision. And you can only do this once.
Another catch: you must repay all of the benefits that you and your family received.
Still, this could be an option if your finances improve and you can afford to stop getting those checks and let your benefits grow.
It does not always pay to take benefits early if you still have income coming in and you are younger than your full retirement age. According to Social Security rules, your benefits will be reduced by $1 for every $2 you earn over $18,240.
Another strategy is to claim your retirement benefits early and then suspend those checks when you reach your full retirement age.
That way, you can let your benefits grow up until age 70, when the Social Security Administration would automatically begin sending you checks again. You can request to start payments again at any time.
Understand that any family members who receive benefits based on your record will not be able to do so while your own benefits are suspended.
For individuals who need the income now, it could be a “very important lifeline for them,” said David Freitag, a financial planning consultant at MassMutual.
“Taking benefits for a year and suspending them at full retirement age might be a good way to restore that loss of taking a benefit early,” Freitag said.
Where can I go for help?
Admittedly, the stakes are now higher when it comes to knowing what decision you want to make.
That is because the Social Security Administration, like many businesses, is running on a reduced capacity in the wake of COVID-19.
The agency’s offices are currently closed to the public. And while there is help available by phone, individuals with critical issues are taking a priority.
“You can apply online for benefits, and you don’t have to go to any office, which is good news,” Freitag said. “You just have to have the right information about your filing strategy.”
The Social Security Administration’s website has an abundance of tips on the ins and outs of retirement benefits.
It may also help to use a Social Security calculator to understand how your decision will impact your finances.