Social Security Do-Overs: What Are the Options? - Rodgers & Associates
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Social Security Do-Overs: What Are the Options?

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Some people begin receiving Social Security and then regret the timing of claiming benefits. Other retirees may wait longer than necessary to start the benefit and then desire to recoup missed income.

Retirees are no longer allowed to stop drawing benefits by repaying the amount they’ve received and restarting them later at the (then) higher rate. In 2010, the Social Security Admin­is­tration issued a regulation that effec­tively limits the option to “restart” Social Security benefits. A recipient is now limited to one restart in a lifetime, and it must take place within 12 months of claiming the initial benefit.

There are a few do-over options that retirees may be able to use to change their Social Security claiming decision. Each one involves specific rules. The COVID-19 pandemic has generated interest in these strategies, as seniors have had to revise their retirement plans. Some individuals have stopped working earlier than antic­i­pated, for example, or realized they could extend their careers by working remotely.

Option 1: Withdraw your application for Social Security benefits.

Anyone can withdraw their appli­cation within 12 months of first claiming benefits by repaying the amount that’s been received. The repayment must also include any benefits received by family members collecting benefits on the retiree’s earnings record. This option can only be used once, and it allows the applicant to reapply for benefits later when the monthly amount would be larger.

Anyone enrolled in Medicare should note that the Medicare Part B and Part D premiums can no longer be deducted from Social Security benefits once they’ve stopped. The premiums will need to be paid directly. Since Medicare coverage is not tied to Social Security benefits, coverage won’t be interrupted.

Take these steps to withdraw an application:

  • Complete Social Security Form SSA-521. Include the reason for the withdrawal of the application.
  • For anyone on Medicare, the request must also state whether Medicare coverage should or should not be included in the withdrawal.
  • Send the completed form to your local Social Security office. The office will send notice when there is a decision and advise the amount that needs to be repaid.

An applicant has 60 days to cancel an approved withdrawal. After that, any possible entitlement for the period covered by the original appli­cation is lost.

Option 2: Suspend Social Security benefits.

For some, repaying Social Security benefits may create financial hardship. The option to suspend Social Security doesn’t require repaying benefits, but it is only available to seniors who have reached full retirement age or later.

When Social Security has been suspended, benefits automat­i­cally begin again at age 70. A senior could elect to resume benefits before 70, and would still receive delayed retirement credits for the period when benefits were suspended. During the suspension, benefits earn delayed retirement credits at the rate of two-thirds of 1% per month, for a total of 8% per year up until age 70.

Payment of Medicare premiums would need to be arranged separately while benefits are suspended. The suspension will also impact any family members who are collecting benefits on the retiree’s earnings record.

Married couples should consider this strategy carefully, since the surviving spouse will receive 100% of the largest Social Security benefit. Suspending benefits to get the maximum delayed credits could make a meaningful difference to the widow(er)’s income.

Option 3: Request a lump-sum payout of retroactive benefits.

The purpose of retroactive benefits is to allow seniors who have missed their planned filing date to push back their retirement date by up to six months.

To request a lump-sum payout of retroactive benefits, a senior must be past full retirement age and should bear in mind that the maximum payment is for six months. A senior whose full retirement age is 66 and applies for benefits at age 67, for example, could receive the maximum six months of retroactive benefits. If they applied for benefits at age 66 and four months, however, they could only receive four months of retroactive benefits.

A senior should carefully consider the impact of pushing back their filing date, which creates a perma­nently lower retirement benefit and survivor benefit. It equates to trading a lump-sum benefit today for a lower monthly benefit for the rest of your life and your spouse’s life.

A person needing a sum of cash now could consider combining two strategies to help protect their monthly benefit: Request a retroactive payment today, while suspending monthly payments to rebuild that amount.

Think of Social Security benefits as longevity insurance. They’re intended to protect you finan­cially if you live to be 100 years old or more.

Rick’s Insights:

  • An appli­cation for Social Security benefits can be withdrawn within 12 months of first claiming benefits by repaying any benefits that were received.
  • Social Security benefits can be suspended after reaching full retirement age to allow the benefit payment to earn delayed credits until age 70.
  • Anyone applying for Social Security benefits after full retirement age can apply for a lump-sum retroactive payment of up to six months of benefits.