If you claim your social security benefits and later realize doing so might not have been in your best interest, you may have an opportunity for a do-over. There are three strategies that may apply, depending on your individual circumstances. Let’s take a look at each.
Do-Over Strategies
1. Withdrawing an Application for Benefits
You may have claimed benefits before your full retirement age (FRA) and now you have changed your mind. You may have realized you would rather not have reduced monthly benefits (by claiming early, your benefit can be reduced by as much as 30 percent). Or maybe you didn’t have all the information you needed to factor into your decision, your personal circumstances have changed, or you have a short-term cash need. Whatever your reasons, you can withdraw your application as long as it is done within 12 months of first claiming benefits. To do so, submit Form SSA-521: Request for Withdrawal of Application.
You only get one withdrawal opportunity per lifetime. But when you ultimately claim your benefits, you will have erased the reduction for claiming early and get whatever you are due at the age you claim. So, if you wait to claim at age 70, you will get the benefit of any delayed retirement credits that accumulate
after your FRA.
The Social Security Administration will notify you if your request has been approved and how much you are required to repay. You do need to pay back all benefits you have received, including any amounts your spouse or children received through spousal or dependent benefits, as well as amounts withheld from
your social security check, such as Medicare premiums. The benefits must be paid in one lump sum; they cannot be paid back over time. This may present problems, especially if it involves a large sum of money. If you claimed early and were receiving $2,500 per month, for example, and changed your mind after
11 months, you would need to repay $27,500 all at once.
It is important to remember if you are already enrolled in Medicare, you will have to pay your Medicare Part B and D premiums directly because you are no longer able to have those premiums deducted from your monthly social security check.
To take advantage of the other do-over options, however, you must have at least reached your FRA.
2. Suspending Benefits
Once you reach FRA you may suspend benefits if you collected early. This allows you to reduce the early social security benefit collection penalty. You do not need to repay any benefits with a suspension, but any dependent benefits paid on your earnings record will stop. This includes spousal or other family benefits. While your benefits are suspended, you will earn delayed retirement credits of 8 percent per year until age 70, resulting in a higher benefit payment. Your benefit will be suspended beginning the month after you make your request. As with withdrawn benefits, your Medicare Part B premiums cannot be deducted from your suspended benefits, so be sure to make alternative arrangements for paying the premiums, such as automatically paying from a financial institution account.
To illustrate how suspended benefits work, let’s consider an example. If you claimed your retirement benefit early at age 62 and your FRA was 67, you would receive 70 percent of your FRA benefit. If you then suspend your benefit at 67, your monthly benefit would stop and you would earn delayed retirement credits up to age 70, when your benefits would resume. At that point, your benefit would be worth an estimated 86.8 percent of your FRA benefit (70 percent [representing your permanent reduction for claiming early] multiplied by 1.24 [to account for three years of delayed retirement credits]).
3. Retroactive Benefits
Once you have reached your FRA, you may be able to collect up to six months of social security benefits retroactively. Retroactive benefits are paid in a lump sum, but you will lose any delayed retirement credits you may have earned for those six months.
Keep in mind that if you claim your benefits three months after your FRA, you will only be entitled to retroactive benefits for three months. Those who claim social security benefits before their FRA are not eligible to receive retroactive benefits.
One must consider the tax impact of the lump sum payment as well as the future loss of the delayed retirement credit amount (plus cost of living amount on this amount).
Making the Most of Social Security Benefits
The three options discussed above allow you to rethink your original claiming strategy and potentially reap a larger overall social security benefit. We can help you determine if your claiming strategy makes sense given your circumstances and whether these options can help optimize your monthly benefits.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.
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