Nearly a quarter of Baby Boomers plan to postpone their retirement due to the COVID-19 pandemic, according to a new survey, and about the same number say the crisis has changed when they plan to claim their Social Security benefits.
Some 24% of those 56 and older say the pandemic has caused them to push back their planned retirement date, according to a survey conducted by The Harris Poll on behalf of The Nationwide Retirement Institute. While 401(k) balances remain buoyant for now, the U.S. is mired in a recession: the official unemployment rate is 11.1%, up from 3.7% at this time last year, and the country’s real gross domestic product plunged at an annual rate of 32.9% in the second quarter, according to numbers released Thursday morning. The bleak economic outlook probably won’t improve until a vaccine for the coronavirus is developed and distributed widely.
“There’s just a lot of uncertainty,” says Tina Ambrozy, senior vice president of strategic customer solutions at Nationwide.
Fifteen percent of pre-retirees say they plan to take Social Security later than expected due to COVID-19, while 8% plan to claim their benefits earlier, the survey found.
However, many Americans lack a basic understanding of Social Security, which complicates their ability to make informed decisions, according to a separate survey conducted by The Harris Poll on behalf of The Nationwide Retirement Institute just before the pandemic. For example, nearly one-third of those of boomer age and beyond believe that, if they claim early, their benefit will automatically increase when they reach full retirement age, which ranges from age 66 to age 67, depending on the year of your birth.
This isn’t the case. Your benefit amount is set when you file, and the only increase you get to your monthly check is a small inflation boost every year — there’s no big jump when you reach a designated age. This means that people who file at their earliest opportunity, age 62, lock in lifetime benefits that are up to 30% lower than they would have received if they’d waited until full retirement age.
Some people may have little choice but to claim early, if they’ve been laid off and don’t have adequate savings to fall back on. But financial experts say they should at least understand the trade-offs involved.
Americans also worry that Social Security will run out of money: 66% of those boomer age and older are concerned the program will run out of funding in their lifetime. This may prompt them to claim benefits earlier than they would otherwise, in the misguided hope of getting their hands on some of the money before it goes dry.
But Social Security won’t go bankrupt. The most recent trustees report says the Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, will be able to pay scheduled benefits on a timely basis until 2034, the same as reported last year. If Congress fails to act to bolster the program’s finances, the fund’s reserves will become depleted, and continuing tax income will cover 76% of scheduled benefits after that. That would result in a benefit reduction, not a benefit elimination.
To be sure, these projections don’t reflect the possible effects of COVID-19 on the program, the trustees note. But ongoing payroll tax revenue means that Social Security will not run out of money even if the pandemic does some damage to it. The Trump administration proposed a payroll tax cut for the next stimulus relief bill, which would have allowed workers to pocket more of each paycheck but reduced the funds going to Social Security and Medicare. While the bill remains under debate in Congress, Republicans announced last week that they would not include that proposal.
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