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SSA Revises Withdrawal Policy

On December 8, 2010, the Social Security Administration published a revision to their “withdrawal policy”.  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.

What’s Changing?

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.


  1. […] Revised Social Security Withdrawal Policy from Financial Ducks in a Row […]

  2. Mike McFate says:

    Jim– Good, informative article. I, like many people, am quite concerned about future solvency of social security, escpecially with the current federal debt situation. I think I read somewhere that in a matter of a decade or so we’ll only have enough GDP to fund mandatory payments and nothing else if we don’t don something. What are your views on solvency?

    1. jblankenship says:

      Hi, Mike –

      I agree, things are going to have to change with the Social Security system for it to remain in the state we know it today – I expect we’ll see (as has been discussed already) increases in the FRA, increase in the max age, and probably an increase in the taxability of benefits, most likely all within the next year or two. Longer term, it would make a great deal of sense to begin offering tax incentives to those who can opt out of Social Security. The idea of providing retirement benefits to all citizens is fast becoming a fantasy, as the system in place today is, as you mentioned, becoming exhausted with trying to do just that.

      I guess time will tell…


  3. dedevil says:

    Holy Toledo,

    Have just received the letter indicating the amount to payback($154,322). The letter was dated 11/27/2010. Just cashed in the above amount from from my Rollover IRA. Have the certified check which is to be sent to SSA. Should I send it to SSA?. Should I hold it and get my money back and put it back in my IRA?

    Am I grandfathered?

    Who will be able to tell me whether I Have a chance or not.

    1. jblankenship says:

      Hello, dedevil –

      You just have to talk to the SSA and find out. I don’t have any insight as to just how these “in process” actions are being handled. I would guess that you’d be grandfathered, but just don’t know for certain.

      Do me a favor and let me know what you find out, okay?

      Thanks, and good luck!


  4. SSA Revises Withdrawal Policy - Finance | Business News Online says:

    […] IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).SSA Revises Withdrawal Policy […]

  5. […] This post was mentioned on Twitter by Sherrill St. Germain and Jim Blankenship, Jim Blankenship. Jim Blankenship said: RT @blankenshipfp: SSA revises their withdrawal policy – is the "do over" done? […]

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