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You’re allowed to file for your Social Security retirement benefits when you reach age 62 (in general). Most advisors recommend that you delay filing until some later date to better maximize your lifetime benefits. But what do those advisors know anyhow?
At least that is what you were thinking when you first filed. After all, you’ve paid into the system for your entire working life, you deserve to get the money back out, right? Plus, who knows when Social Security will go bankrupt, right? Gotta get the money while you can!
Then a couple of years pass and you realize that you short-changed yourself (and your spouse) by taking early benefits. Turns out that you didn’t need that money at 62 – you could have delayed. And you’ve come to realize that Social Security is not likely to go away, at least not in your lifetime. (Maybe those advisors were right after all?)
So what can you do? Well, back in the olden days, before December 8, 2010, there was a complete do-over available to you. But since that is ancient history, we won’t review it here (see this article for more information on the original do-over). Under today’s rules, you have three do over options available to improve your situation.
Three Do Over Options
12-month Do-Over. If you discover within 12 months of your filing date that you would like to rescind your filing, all you have to do is file Form 521 with the Social Security Administration and pay back all the benefits that you have received to date. This option is only available within the first 12 months after your filing, and you can only do this once in your lifetime.
When you do this, SSA looks at your situation as if you had never filed, so you are free to file again immediately, or at any point in the future. You’ll then receive an increased benefit since time has passed after your original filing.
Suspend Benefits at FRA. If more than 12 months has passed since your filing, you’re more limited in your options. Whe you reach FRA, you could suspend receiving benefits, and allow your record to accrue Delayed Retirement Credits.
For example, if you started benefits at age 62 and your reduced benefit is $750, this is a 25% reduction from your “full” benefit had you waited Full Retirement Age. After you suspend your benefit at Full Retirement Age and delay your benefit to age 70, you would receive a 32% increase to your benefits. This would increase your retirement benefit from $750 up to $990, almost the same as if you had waited until FRA to file in the first place. The key is that you must wait until Full Retirement Age (66 for folks who were born before 1955) before you can suspend.
Work it off. If you are still working between the time that you filed and your Full Retirement Age, the amount of money that you earn can help to improve your future benefits. This is due to the fact that there is an earnings limit when collecting Social Security retirement benefits and you’re under FRA. For every two dollars over $15,480 (2014 figure) your benefits are reduced by one dollar.
Those reduced dollars are added together over the years. The number of months’ benefits that were given back by the reductions are then added to your record when you reach FRA.
For example, say your benefit is $1,500 per month, having started receiving benefits at age 62. Over the four years between 62 and 66 you earned $20,000 over the annual earnings limit each year, so you “gave back” $10,000 of benefits each of those four years. The total returned, or reduced, from your benefit is $40,000. That works out to 26 months’ worth of benefits. When you reach FRA, your benefit amount is adjusted by those 26 months, so now you will receive a benefit as if you had filed at age 64 years, two months. This means that your new benefit will now be $1,756.