Could You Benefit From a Social Security Do-Over?
If you’ve done any Social Security planning, you’re probably aware that you’ll get a larger check if you put off claiming benefits until age 66 or even 70, rather than starting at age 62. But what if you’ve already started receiving benefits? Is there any way you can take back that decision so that you can get a large benefit later on? The answer is yes. While the rules regarding a Social Security “do over” have changed a bit in the past few years, you may still have the opportunity to rethink your retirement decision and get a larger monthly benefit.
Social Security Do-Over: The Basics
Let’s say that you apply for and start receiving your retirement Social Security benefits at age 62. Later, you decide that you’d rather wait to get your benefits, so that you’ll receive a larger monthly check. What can you do? Well, up until a few years ago, you could simply stop your benefits and repay the amount you’d already received to Social Security (without paying any interest). Then, you would reapply again at a later date and receive a larger benefit. That option has changed, however. Now, you have only a 12-month window after you start receiving payments to reverse your decision and pay back benefits. And you can only do it once. After that, you’re out of luck.
Another Option: File and Suspend
So, let’s say that you’re outside of the 12-month window in which you can stop and repay benefits. Are you stuck with a lower Social Security benefit for life? Not necessarily. You still have many retirement planning options. One strategy you can use is to voluntarily suspend your benefits, which will allow you to earn delayed retirement credits. Those credits increase your benefit by about 8% for every year you don’t collect between your full retirement age and age 70 (you won’t earned any delayed credits if you’re older than 70). As a bonus, if you decide to file and then suspend your benefits, your spouse and any dependent children will be able to collect their benefits, while you allow your own benefit to grow. For some families, this is a smart way to maximize the Social Security benefits available to them.
The Advantage of Waiting to Claim Benefits
The big advantage of waiting to claim retirement benefits, or filing and suspending, is that you’ll get a larger monthly check when you do start drawing benefits. As an added bonus, if you die before your spouse, their survivor’s benefits will also be higher. Plus, cost-of-living increases will increase the size of your check even more.
Of course, waiting to claim benefits isn’t the best decision for everyone. Some people can’t afford to wait to claim Social Security, since they need the money right away. Others may have a serious illness or shorter life expectancy, in which case they might get more from Social Security if they claim as soon as they are eligible. Since every person’s situation is different, there’s no one right answer to the question, “When should I file for benefits?”
You Need a Social Security Plan
Navigating the ins and outs of Social Security can be tricky. It’s easy to make a small mistake that can end up costing you or your loved ones thousands of dollars in benefits. To avoid that possibility, you can work with a financial advisor who is experienced in Social Security planning. He or she can help you understand all your different options and implement a strategy that helps you get the most from the program. If you’ve already starting claiming benefits but think you may need to reconsider that decision, you should also talk to a financial advisor, so that you can make the right adjustments as quickly as possible.
By Chris Cooper, CFP®