Millions of Americans are desperate for financial relief right now. Could claiming Social Security well ahead of retirement age be the solution?
Millions of Americans are struggling due to the COVID-19 crisis, and while there’s already been some degree of relief — namely, boosted unemployment benefits, forgivable small business loans, and the stimulus payments that have been going out since April — a lot of people are still desperate for money. Those in need of cash have several options at their disposal. They can borrow against their homes, apply for personal loans, or even raid their retirement plans early without the penalties that normally apply for doing so. But desperate Americans may have another cash source to tap — Social Security.
The Trump administration is reportedly considering the idea of prepaying Social Security benefits to workers before they’re eligible to file. Normally, the earliest age to sign up for Social Security is 62, and claiming benefits at that age results in an automatic reduction in those monthly payments. Generally, that reduction is lifelong, though it’s possible for seniors to undo their filings and avoid that fate.
Due to the ongoing crisis, the Trump administration is supposedly considering the idea of letting Americans collect up to $5,000 in Social Security immediately. The catch? They delay that money later in life. Specifically, the $5,000 would be set up as a loan with a government-set interest rate that would reimburse Social Security’s trust funds. Workers who take their $5,000 in Social Security well ahead of schedule would forgo their first three months of benefits later in life in exchange.
A viable solution, or terrible idea?
Those in favor of letting workers access Social Security early say that it’s a good solution for those who need money but don’t have personal savings to tap (retirement or otherwise), don’t own homes, and don’t have the credit scores needed to qualify for a personal loan. The problem, however, is that Social Security’s purpose is to serve as a means of poverty protection for seniors who no longer have a paycheck from work to collect. By accessing that money today, workers would risk falling on hard financial times during their later years, when they’re even more vulnerable.
Supposedly, the aforementioned proposal could be structured so as to not hurt Social Security financially, and that’s a good thing given that the program was already facing its share of fiscal woes before COVID-19 took hold. But given the dangers associated with letting workers take an advance on their Social Security income, this is one proposal that may be unlikely to get put into practice. A better solution to the current crisis may instead come in the form of a follow-up stimulus check — something many lawmakers have been calling for since the first round of payments went out. So far, a second stimulus has not been approved, but if the COVID-19 crisis drags on for the remainder of the year and continues to batter the economy, something will need to be done to help Americans stay afloat.
Author: Maurie Backman