Should You Take Social Security Benefits Early After Job Loss During the COVID-19 Pandemic?
The COVID-19 pandemic has caused significant financial challenges for many Americans, especially those close to retirement age who have lost their jobs. For workers aged 62 and older, re-employment opportunities can be scarce. Studies from the Great Recession and recent data from the Becker Friedman Institute at the University of Chicago show that over 40% of jobs lost during the pandemic may never return, forcing many pre-retirees into early retirement and unexpected financial hardship.
If you’re considering whether to take your Social Security benefits early after losing your job, it’s important to evaluate your financial situation carefully before making this decision.
Assess Your Income Shortfall Before Claiming Social Security Benefits Early
Start by calculating how much your lost income falls short of covering your monthly expenses. Look at all possible income sources, including savings, spousal income, or other benefits. If these can cover your costs, you may avoid claiming Social Security early. If not, file for unemployment benefits promptly to help cover bills while you search for new employment.
Use Available Federal Relief Programs and Retirement Plan Options
The CARES Act provided temporary relief allowing penalty-free early withdrawals from 401(k) or other defined contribution plans for individuals affected by COVID-19. You have up to three years to repay these withdrawals or pay taxes on the amount withdrawn. Additionally, loan limits on retirement plans were increased to $100,000 with repayment deferrals available for up to one year. These options can help supplement income during difficult times without permanently reducing your Social Security benefits.
Understand the Impact of Taking Social Security Benefits Early
Full retirement age (FRA) varies by birth year but is generally between 66 and 67 years old. Claiming Social Security benefits before FRA results in a permanent reduction in monthly payments. For example, if your FRA is 67, claiming benefits at age 62 could reduce your monthly amount by about 30%.
Here are Social Security benefit examples for 2025 (approximate):
- Age 62 max benefit: $2,400/month
- Full retirement age (67) max benefit: $3,300/month
- Age 70 max benefit: $4,000/month
Delaying benefits until age 70 can increase your monthly benefit by up to 8% annually after FRA, resulting in significantly higher income over time.
Can You Undo Early Social Security Claims?
If you claim benefits early but find new employment within 12 months, you may request to withdraw your application and repay all benefits received. This option, allowed once in a lifetime, can help you restore your full retirement benefits later.
Explore All Options Before Deciding
Taking Social Security early should be a last resort after considering all alternatives such as unemployment benefits, retirement savings loans, or family support. While Social Security is a vital safety net designed to help you during financial hardship, early claims reduce your long-term retirement income.
Have questions about Social Security or retirement planning? Contact us at (207) 848-5600 or email info@aginginmaine.com for personalized assistance to protect your financial future.
