3 social security measures you should take in the event of a second wave of COVID-19
The coronavirus pandemic is far from over, and many states that have recently reopened are experiencing an increase in the number of COVID-19 cases.
A second wave of the pandemic could affect your retirement plans, so it’s a good idea to have a strategy in place now on how COVID-19 could impact your retirement years. Since Social Security benefits will likely be an integral part of your retirement plan, it’s important to take these crucial steps before you retire.
1. Rethink how much you can rely on benefits
In general, Social Security benefits will replace about 40% of your pre-retirement income. However, it is possible that benefits will be reduced over the next decade, and a second wave of COVID-19 could make matters worse.
The Social Security Administration (SSA) uses a combination of payroll taxes and money from its trust funds to pay benefits, but the trust funds are expected to be depleted by 2034, according to the SSA’s latest projections. Since payroll taxes alone won’t be enough to fully cover benefits, your monthly checks could be reduced by around 25%.
The problem is exacerbated by the fact that more than 45 million Americans have lost their jobs at some point during the coronavirus pandemic, and a second wave could trigger another round of mass layoffs. That’s a lot of workers who no longer pay social charges. As a result, the SSA may have to draw more from its trust funds to pay benefits, and those funds may run out of money even sooner.
This means that benefits could be reduced before 2034 and you may not be able to rely on Social Security as much as you think. So it’s a good idea to focus on building a healthy pension fund now, just in case benefits are reduced in the future.
2. Think about what age you should start claiming
A second wave of COVID-19 could mean more layoffs are ahead, and older workers could be particularly vulnerable as it could be difficult to find another job later in life. No one knows how long this pandemic will last, and if you’re already nearing retirement age, you might just choose to retire early rather than spend months or years looking for another job.
You don’t necessarily need to claim benefits as soon as you retire, so it’s important to determine the age at which you should file for Social Security if you end up retiring earlier than expected.
You can start claiming no earlier than age 62, but your monthly checks will be reduced for each month you claim before your full retirement age (ENG) — either 66, 66 and a few months, or 67, depending on the year you were born. If you wait until after your FRA to claim, you will get an additional 8% per year until age 70. These benefit adjustments are also permanent, so it is not a decision to be taken lightly.
If you lose your job and are forced into early retirement, you can choose to apply as soon as possible to boost your retirement income. Or if you can survive just on your savings for a few years, you might decide to delay benefits to earn those bigger checks. By strategizing now, you have time to weigh your options rather than making a last-minute decision if your retirement plans change.
3. Think about how your future benefit amount might change
Not only could early retirement affect the age at which you should start claiming benefits, but it could also change the amount you are entitled to receive.
Your base benefit amount – or the amount you will receive by claiming from your FRA – is based on the 35 highest earning years of your career. The SSA takes an average of your earnings over those years, adjusts it for inflation, and the result is your benefit amount.
If you don’t work for 35 years, you will receive fewer benefits because zeros will be added to your average earnings equation. Also, if you lose your job later in life and retire early, you could miss the opportunity to add more earning years to your average.
You can check the amount of your future benefits online by create a mySocialSecurity account, which can give you a good idea of how much you could receive from your FRA if you stopped working now. If it’s lower than you expected, it’s wise to start building up your retirement fund or look for other sources of retirement income.
Although the future may be uncertain, that doesn’t mean you can’t prepare for it as much as possible. By thinking about how a second wave of COVID-19 could affect your Social Security benefits, you can ensure that you are as prepared as possible for whatever the future may hold.