“Many people think they can control when they retire. The truth of the matter is, there are lots of people who are forced into retirement due to disability, job loss or other unforeseen circumstances,” according to Sri Reddy, senior vice president of retirement and income solutions at Principal Financial Group.
The pandemic is nothing if not an unforeseen circumstance, and some of the people who lost jobs as companies cut their workforces may have turned to Social Security; either by claiming retirement benefits or, as Reddy notes, taking disability benefits.
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“Whenever there’s an economic downturn, people filed an increased amount of disability claims,” he said. “With this pandemic, there are people who may not be at retirement age who are going down the Social Security disability claim path as well.”
Americans have reported high levels of anxiety around Social Security’s future, and when faced with immediate income fears, it may look like an easy decision to start taking benefits. However, experts urge delaying filing for as long as possible.
“When you’re dealing with sustained global low income rates, and stock markets at all-time highs, it’s a really risky proposition for retirees and near retirees,” he said. “The best way to protect against inflation and get something more than the meager returns you’re getting in the fixed income space today is by delaying Social Security.”
Social Security benefits increase almost 8.5% every year that retirees delay claiming, Reddy said. “More importantly, that gets inflation adjusted for the rest of your life.”
Related: Could the 401k Be a Social Security ‘Bridge’ to More Income?
One way that advisors can dissuade certain clients who are inclined to begin taking Social Security right away is to look at spousal benefits they may be entitled to.
“If you’re someone who is either divorced or someone who has is a widower, something else to consider is can you actually take survivor benefits or spousal benefits in lieu of your own benefits,” Reddy suggested. “That way you can still delay your benefits until you can maximize the amount of the monthly benefit, and still have income coming in.”
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Danielle Andrus works as an editor for The Financial Planning Association® (FPA®). Over the past 15 years, she has worked in various capacities, including writing and editing. Andrus has worked for several notable publications and outlets and spent more than seven years as the executive managing editor at ALM Media, publisher of Investment Advisor magazine and ThinkAdvisor.com. Before that, she was online editor for Summit Professional Networks, where she oversaw newsletter development for four magazines, including Benefits Selling, Senior Market Advisor, Boomer Market Advisor, and Bank Advisor.
