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Social Security and Covid-19 - Should you claim now if you're over 62?

Social Security and Coronavirus: Should Out-of-Work individuals Over 62 Claim Now?

 If you’re in West Michigan and have been laid off or are facing business downturns, you may be considering claiming Social Security if you’re approaching age 62. These guidelines can help navigate the decision. Plus, Hungerford Financial gives the facts on how Social Security is functioning during the pandemic.

On Tuesday, March 17, all Social Security offices were closed to the public for in-person services, and they remain closed. As the Social Security Administration press release states, “This decision protects the population we serve—older Americans and people with underlying medical conditions—and our employees during the COVID-19 pandemic. However, we are still able to provide critical services.”

Benefits will continue to be paid. The vast majority of monthly benefits are paid via electronic transfers to individual bank accounts. These will go on as before, so your benefits are not in jeopardy despite any fraudulent letters they may receive from scammers claiming that Social Security benefits will be suspended because of COVID-19.

Phone and online services available. Many things can be done online, such as applying for benefits, getting a benefit verification letter, or submitting an address change. Questions can be answered by calling the main phone line, but be prepared for long wait times. Check these FAQs before making a phone call to your local office.

Limited services in field offices. Most SSA employees are working remotely, but in certain dire circumstances, it may be possible to meet with a worker in a local office. See the online field office locator for information about how to directly contact a local office.

Calls from SSA workers. SSA workers sometimes make outgoing calls, such as to reschedule an appointment or follow up on an application. While they are working remotely, these calls may now come from a private cell phone rather than a government office. You may need to use their judgment to discern the legitimacy of the call. SSA will never make threats or ask for any form of payment.

Stimulus checks will be paid. Social Security recipients are eligible to receive the $1,200 stimulus check authorized by the CARES Act if annual income is under $75,000 ($150,000 for joint filers). Individuals who do not file a tax return will still get the money based on their Form SSA-1099. There was some confusion about this when the IRS issued guidance on March 30 saying that people who don’t owe federal income tax would have to file a simplified tax return in order to get their stimulus payments. Treasury Secretary Steven Mnuchin reversed this on April 1, saying tax filing is not necessary. “Social Security recipients who are not typically required to file a tax return need to take no action, and will receive their payment directly to their bank account,” Mnuchin said. However, the Tax Policy Center advises filing a tax return anyway, in the belief that payments would come sooner and ensure that the government has the correct direct-deposit information on file.

Social Security claiming decisions

If you have been laid off or are facing business downturns, you may be considering claiming Social Security if you have reached age 62. In these uncertain times, immediate income needs may give way to optimal long-term strategies. But try to mitigate the damage as much as possible by remembering these guidelines.

Higher-earning spouse should delay if possible. Married couples can maximize the higher earning spouse’s benefit by claiming benefits at age 70. This maximizes income to the higher-earning spouse during his or her lifetime and to the surviving spouse after death. Our calculators show that a maximum earner who lives to age 85 (or whose spouse lives that long) will receive $238,000 more in lifetime benefits by claiming at 70 versus 62.

Lower-earning spouse may claim early. To get income started now, the lower-earning spouse can go ahead and file early. As long as the higher-earning spouse’s benefit is being maximized, early-claiming reductions to the lower-earning spouse’s benefit shouldn’t be too significant, especially in light of current income needs.

The earnings test will apply before FRA (full retirement age). People who have lost their jobs may not have to worry about the earnings test. But remember that if a person is under FRA and works, $1 in benefits will be withheld for every $2 earned over the annual threshold of $18,240. In the first year of application a monthly threshold applies: If a person earns less than $1,520 in each month after starting benefits, no benefits will be withheld, regardless of how much he or she earned earlier in the year before applying.

Don’t worry about the earnings test. Say you decide to apply for Social Security and have an opportunity to go back to work while you are still under FRA. Please don’t use the earnings test as an excuse not to work. Yes, your benefit will be withheld, but then it will be recomputed when you turns FRA, so you're really not losing any benefits. At FRA, the early claiming reduction will be removed with respect to those benefits that were withheld, giving him a higher benefit going forward.

Application can be withdrawn during first 12 months. Let’s say you get laid off, decide to start Social Security to meet immediate income needs, and get hired back within 12 months. If you no longer need the Social Security income and wants to maximize your benefit, you can withdraw your application and repay benefits, essentially starting over.

Benefit can be suspended at FRA. Or, let’s say you go back to work but do not want to withdraw and repay. Once you are over FRA, you can suspend your benefit and build 8% annual delayed credits to age 70. This will give a maximum earner more than $110,000 in additional lifetime benefits if you live to age 85. Note that spousal benefits cannot be paid while a benefit is in suspension (does not apply to divorced-spouse benefits).

PIA may be affected by lack of earnings. The benefit amounts shown on the Social Security statement presume continued earnings until claiming age. If a person stops working before then, the actual PIA will be lower than the amount shown on the statement. The exact reduction will depend on the individual's earnings record, but usually runs around $100–$200. Go to the SSA Retirement Estimator for a customized estimate.

Medicare Part A is mandatory if over 65 and receiving Social Security. Remember that if an individual applies for Social Security and is over 65, they will automatically be enrolled in Medicare Part A. This could be a good thing in the age of COVID-19, as Part A covers 100% of the first 60 days of hospitalization after a $1,408 deductible (which is covered by all Medigap policies). The only downside is if you want to contribute to an HSA: no HSA contributions may be made for any period of time while you are enrolled in Medicare. If you start Social Security and Part A during a period of unemployment and then go back to work where the health plan involves an HSA, you would need to disenroll from Part A. But because the high-deductible health plans that go with HSAs generally offer inferior insurance compared to Medicare paired with a good supplement, you may want to forego the employer plan in favor of Medicare. (Read more about Medicare and COVID-19 here.)

 As always, if you have questions please schedule a conversation through our website.

Michael Steinebach is a Financial Advisor serving the Greater Grand Rapids area.  Born and raised in Rockford, Michigan, Michael is a focused on helping individuals in the community make prudent choices with their money.  

The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.  Michael J. Steinebach is an Investment Advisory Representative offering advisory services through Hungerford Financial.  Securities offered through United Planners Financial Services, member FINRA/SIPC. Hungerford Financial and United Planners are not affiliated.