Comparing how COVID-19 and the Great Recession affected Social Security claimants?

The media frequently questioned how economic unrest, a health crisis, and a stock market collapse would affect senior workers when COVID-19 shut down the economy in the early 2020s. The inclination at the time was to compare how younger workers responded during the Great Recession. Despite wanting to work longer to make up for lost savings, the scarcity of jobs led many to apply for Social Security as soon as they were eligible at age 62.

Of course, the COVID experience was utterly different from the Great Recession. The Dow Jones Industrial Average first fell by 34%, but it quickly rose again and kept rising.

The National Bureau of Economic Research (NBER) characterized the Recession as the shortest after the economy swiftly reached its bottom. Additionally, the government’s unparalleled assistance for the unemployed made finding work far more appealing than applying for Social Security payments. Nevertheless, older employees continued to retire and get Social Security benefits even though the two recessions had very different characteristics. 

So the study investigated the relative effects of the two recessions on the Social Security-claiming behavior of various groups. The researchers used data from a study to compare how the claim pattern changed from the expansion years 2004–2006 to the recession years 2008–2010 with the expansion years 2016–2018 to the recession years 2020 to ascertain the differences and similarities between the periods.

The research offered three theories based on the peculiar characteristics of the COVID Recession

The COVID recession’s booming stock and housing markets made it easier for wealthier workers to file early claims. At the same time, lower earners who benefited from the expansion of unemployment insurance (UI) are less likely to do so than during the Great Recession. The effects of poor health on early claims would be stronger during the COVID-19 Recession compared to the Great Recession.

The study concentrated on the relative likelihood of early claims for various categories, as it is nearly impossible to comprehend the direct findings of estimating two hazard models.

Health: The findings do not support the idea that the COVID Recession had worse health consequences on early claims than the Great Recession. There are two viable explanations.

First, there is no independent effect of reporting bad health because it is probably connected with other factors, such as income, wealth, and education. Alternately, those with bad health might not have had to leave the workforce because COVID permitted them to work from home.

Wealth: In the area of wealth, it seems that the theory that wealthy workers will be able to file early claims due to the COVID Recession’s growing stock and housing markets is correct.

Workers, particularly those with a defined-contribution (DC) retirement plan, were less likely to make an early retirement claim than workers without a plan before, during, and after the Great Recession and during the pre-COVID boom. As the stock market started rebounding during the COVID Recession, people with DC plans were no longer more likely to file early claims than those without plans.

Unemployment Insurance: During the Great Recession, early claims from low- and middle-income workers were not adversely affected by increasing UI payments; however, the COVID tale was substantially different.

The claim behavior of the workers in the lower terciles wasn’t significantly different from that of the earners in the top tercile when the enlarged payouts became available. Workers in the lower terciles had a substantially higher propensity to submit early claims than those in the top tercile before the COVID Recession.

Overall Effects: Although the discussion above concentrated on changes in relative likelihoods, the hazard model enables one to follow older workers’ whole claim history to determine fundamental changes in the probability of filing an early claim. Early claims increased by 0.8 percentage points during the Great Recession due to the high unemployment rate, whereas they somewhat decreased during the COVID Recession.

Low and middle-income earners took the lead in the decline due to the high UI replacement rates. As such, the increased UI benefits benefited workers in their current circumstances and guaranteed them slightly increased Social Security benefits as they approached retirement.

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Bio:
Rick Viader is a Federal Retirement Consultant that uses proven strategies to help federal employees achieve their financial goals and make sure they receive all the benefits they worked so hard to achieve.

In helping federal employees, Rick has seen the need to offer retirement plan coaching where Human Resources departments either could not or were not able to assist. For almost 14 years, Rick has specialized in using federal government benefits and retirement systems to maximize retirement incomes.

His goals are to guide federal employees to achieve their financial goals while maximizing their retirement incomes.

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