On December 8, 2010, the Social Security Administration published a revision to their “withdrawal policy”, which we talked about in detail in the article “The Ultimate Do Over”. It’s important for you to know what has changed about this rule, especially if you have been counting on this in your planning for Social Security benefits. You can see the actual text of the SSA’s announcement 20 CFR Part 404 by clicking here.
Essentially SSA has decided that this rule, as it stood, represented a little too good of a deal, even though very few people ever took advantage of it. The rule, in brief, allowed an individual to begin taking retirement benefits at any age, and then at any point in the future the individual could pay back all of the benefits (without interest) and re-set his or her beginning date for receiving benefits. This strategy allowed the individual to receive benefits and invest them, then pay back the entire amount (but keep any interest earned or growth) and then receive a higher benefit due to the credits for delaying retirement.
Under the new rules, you can still use this strategy, but you can only wait for 12 months before you pay back your received benefits. This doesn’t mean that you have to re-set your benefit and continue receiving benefits at the 12 month or less stage – you could pay back your benefit and withdraw from receiving benefits until much later if you wish.
So, the key here is that you couldn’t, for example, begin receiving benefits at age 62, then at age 70 pay it all back and re-set. You’re limited to only 12 months of received benefits before you pay it back. In the example, you could receive benefits at age 62 until you’ve received 12 months’ worth, then stop receiving benefits and pay back what you received – then delay reinstating your benefit until FRA or age 70 or whenever you like. Or, at age 63 you could pay it back and re-set to a benefit for your new attained age.
Another thing that has changed is that you can only do this payback (known by the SSA as a “withdrawal of application”) one time in your life. Previously, there was no limit as to how many times you could do this.
File and Suspend Changing – but not a big change
The last significant change that came about today is regarding the File and Suspend tactic. Don’t worry, this one is still available – what changed is that you can no longer enact a “payback” of received benefits (like with the “do-over”). File and Suspend is only allowed when this is your first application for benefits, meaning that you have not received any benefits in the past (although you could suspend after FRA and voluntarily forego accrued benefits).
Of course, the greatest benefit of the File and Suspend tactic is the ability to establish a “beginning date” on your record, so that then your spouse and dependents can begin receiving benefits based upon your record. This remains unchanged.