Social Security may be able to come to the rescue of people who lose their jobs during the pandemic, said William Meyer, CEO of Social Security Solutions, a retirement and Social Security planning firm.
People 62 years old or older who lose their jobs because of Covid-19 or for other reasons can find extra money temporarily by claiming Social Security benefits early and then suspending the benefits when they obtain a job, said Meyer, who is the co-creator of the SSAnalyzer, a software program that compares numerous options for planning when to take Social Security benefits.
The advantage of using Social Security benefits for only a short time, and then suspending the benefits when the beneficiary’s financial circumstances change, can mean $100,000 or more for the beneficiary over a long retirement, said Meyer, who recently testified before a U.S. Senate committee on how to improve the guidance the Social Security Administration provides.
“Suspension of benefits is a technique that every financial advisor should know about for their clients who are near retirement age,” explained Meyer. “Social Security claiming strategies remain one of the most important decisions an impending retiree will make. The ability to find money and create a longevity hedge is compelling. All advisors need to present claiming options to their clients.”
Each year that a potential Social Security beneficiary delays taking benefits after he or she has reached full retirement age, which is around 67 years of age for most, the benefits grow by approximately 8% a year. This increase applies even if a beneficiary starts taking benefits and then suspends them for a time. For instance, if person suspends benefits for three years, there would be a 24% increase in monthly benefits for the rest of his or her life.
An individual can begin taking benefits as early as age 62, but the beneficiary receives less in monthly benefits than if he or she waits until full retirement age.
Some people may be forced to take benefits earlier than they had planned because of pandemic-imposed financial problems. When talking with clients about their options, advisors should compare cumulative totals rather than just monthly benefits and should compare a wide range of options, Meyer said.
“A typical advisor’s client will receive more than $1 million in benefits over a lifetime and can receive hundreds of thousands of more dollars by selecting the right strategy for their client’s situation,” he said.
Meyer gives an example of how much the increased benefits can mean. If a 62-year-old single person starts taking benefits and lives to age 90, he or she would receive a total of $579,550 in benefit at $1,730 a month. If he or she waits until age 70 to collect the higher benefit of $3,040 a month and dies at at 90, he or she would receive a total of $729,600. If the person lives longer than anticipated, the contrast in total benefits is even starker, he said.
The total amount of added benefits that a person can receive depends on when he or she started benefits to carry them over between jobs and the number of years benefits are suspended once his or her circumstances improve.
The calculations become more complicated when a spouse is part of the picture and his or her benefits and expected retirement age need to be taken into consideration.
“Advisors need to make sure they show clients the analysis and comparison for their situations. Most clients don’t know the added benefits they will receive by maximizing benefits. If the client has savings and resources, even in this scary environment, delaying Social Security is still usually a good idea,” Meyer said.