The chances of a U.S. recession are growing as the coronavirus pandemic hammers the economy, and it may end up killing a valuable strategy for many trying to grow their nest egg for retirement: delaying Social Security.
Many older Americans preparing for retirement make delaying Social Security a priority because it leads to a much larger monthly benefits check depending on when you file compared to your full retirement age (more on this in a bit).
While there’s no telling how long a recession caused by a global event like the coronavirus (COVID-19) could last, The Senior Citizens League warns that a significant downturn may force many that were planning on delaying Social Security to file early because they need the money to pay for necessary expenses.
“Although many older adults today are putting off claiming benefits to allow their Social Security payouts to grow, they are unlikely to be able to afford to wait if they lose their jobs, or when the value of retirement account investments are significantly impacted,” Mary Johnson said in a Wednesday press release from The Senior Citizens League. Johnson is a Social Security and Medicare analyst for TSCL.
Retirees or those that are preparing to exit the workforce have most likely seen a drastic decline in their 401(k)s or other retirement savings accounts, and TSCL warns that could affect retirement prospects as “big changes in equity prices reduce the distributions from those accounts perhaps for several years.”
Johnson also warns that a recession naturally hurts future funding for both Social Security and Medicare.
“Social Security and Medicare need to be adequately financed if a recession would occur,” Johnson said. “When unemployment is high, there’s less payroll taxes flowing into Social Security and Medicare.”
Having to start benefits earlier than planned isn’t ideal for anyone looking at delaying Social Security, so let’s brush up on how full retirement age works and how taking benefits at different ages affects your monthly income.
How Delaying Social Security Affects Your Benefits
Full retirement age for anyone looking to retire soon is somewhere between 66 and 67 depending on when you were born, but you can file for Social Security as early as 62 — at a cost.
If your FRA is 67, and you filed for benefits at 62, you would take a 30% cut to your total benefits. Delaying Social Security until 70, which is the age you stop earning credits toward increasing your benefits, boosts your benefit by 24%.
Here’s a chart that shows how benefits are trimmed or boosted depending on when you file:
| START COLLECTING AT: | FULL RETIREMENT AGE OF 66 | FULL RETIREMENT AGE OF 67 |
| 62 | 75% | 70% |
| 63 | 80% | 75% |
| 64 | 86.7% | 80% |
| 65 | 93.3% | 86.7% |
| 66 | 100% | 93.3% |
| 67 | 108% | 100% |
| 68 | 116% | 108% |
| 69 | 124% | 116% |
| 70 | 132% | 124% |
And to just give an example of how much you look to gain by delaying Social Security, lets look at the average benefits income from January 2020: around $1,500.
Filing at 67 means you are entitled to a monthly check of $1,500, but delaying Social Security until 70 means that amount gets boosted to $1,860. Filing as soon as can at 62 drastically reduces your monthly checks to only $1,050.
We’ll be keeping an eye on how Social Security and its beneficiaries are impacted by the coronavirus and the likely recession coming for the U.S. economy. Delaying Social Security may become more of a luxury in the coming months or years.
• You can find all of the latest and most important news about Social Security here on Money & Markets.