How COVID-19 Might Impact Your Social Security Filing

Seniors who are eligible for Social Security are said to get an eight-year window to sign up for benefits that starts at age 62 and ends at age 70. The reality is that that window lasts longer than eight years since seniors aren't compelled to claim benefits by age 70 if they haven't done so already. However, there's no financial incentive to delay past that point, so 70 is generally considered the latest age to sign up.

Meanwhile, the age at which you claim benefits will determine what your monthly payments look like for life. If you file at full retirement age, or FRA, you'll get the exact monthly benefit you're entitled to based on your 35 highest-paid years in the workforce. FRA is either 66, 67, or 66 and a specific number of months, and it's based on the year you were born.

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You can sign up for benefits prior to FRA, starting at age 62, but for each month you claim them early, they'll be permanently reduced. File a month or two ahead of FRA and your monthly benefits won't take such a large hit. But if you sign up at 62 with an FRA of 67, you'll be looking at a 30% reduction in your monthly benefit.

On the flip side, you'll boost your benefits by delaying your filing past FRA. For each year you hold off, your benefits increase 8% for life, up until age 70, at which point that incentive runs out.

Deciding when to claim benefits is a tough thing, in general. But the COVID-19 crisis could make an already difficult choice even harder.

How COVID-19 could impact your filing decision

First, let's clear one thing up: COVID-19 may be putting your health at risk but it's not putting your benefits at risk. Though the Social Security Administration (SSA) has shut down its local offices for the time being in an effort to support social distancing, seniors will continue to receive their monthly benefits, and new filers can expect their applications to be processed, as well.

That said, COVID-19 could change the way you think about claiming benefits. For one thing, if you're worried about contracting the virus and falling ill, you may choose to claim benefits early so you have more money on hand in case the cost of your care proves more expensive than your existing income can handle. Furthermore, COVID-19 has already shuttered countless businesses, forcing millions of Americans into unemployment. If you're out of work or your income has been reduced, and you need money to pay your living expenses, you may be inclined to claim Social Security early, even if that means taking a lifelong hit on your monthly benefits.

That said, the aforementioned hit may not be permanent. One lesser-known fact about Social Security is that you get one do-over in your lifetime. If you claim benefits ahead of FRA due to a temporary unemployment situation but are then employed again in the not-so-distant future, you'll have the option to undo your benefits application within a year, repay the SSA every dollar in benefits it paid you, and then file for Social Security again at a later point in life, thereby avoiding a permanent reduction in those benefits.

Of course, the COVID-19 crisis may not impact your Social Security filing decision at all, and if you have a plan for when to claim benefits and are able to stick to it, great. But if you decide that altering that plan makes sense based on your circumstances, be sure you understand the ramifications of filing at different ages. Also, be aware of the do-over option before taking action.

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