You only get one chance to file for Social Security, so what happens when you don’t get it right? You have a couple options, but its important to learn the limitations of each.
Many factors go into deciding when to file for Social Security, and what age you choose to file for benefits is arguably the most important decision you make. If you think you filed to early, it may be worth considering a redo. This chart shows full retirement age depending on your birth year, and the benefits boost (or cut) you’ll see.
|START COLLECTING AT:
|FULL RETIREMENT AGE OF 66
|FULL RETIREMENT AGE OF 67
Claiming at 62 means your benefits will be cut between 25% and 30%, and that reduction is permanent. On the flip side, waiting until after your FRA means you’ll get a nice boost to your benefits up to age 70.
While everyone’s situation is different, this chart shows how your one chance to apply for benefits can mean a big swing in your monthly income from Social Security. So let’s look at some of your options for pausing, or stopping, your benefits if you don’t like what foot you started off on.
How a Social Security Withdrawal of Application Works
Your first option is what’s called a Social Security withdrawal of application, and it has a very limited time frame. You only have 12 months from the time you initially applied for benefits to withdraw your claim.
It isn’t hard to apply for withdrawal, though. You just have to fill out a SSA-521 application to get the ball rolling. Just because it’s easy to withdraw, though, doesn’t mean you should necessarily be applying for Social Security benefits without doing some preliminary research.
“You need to make the decision on purpose, rather than by accident,” MassMutual Social Security expert David Freitag told CNBC.
But we can’t predict the future, and there’s nothing wrong with withdrawing your application because things change.
Taking Social Security early is something to consider if you are in dire straits or poor health because it could help you get out of a financial hole or give you more time to enjoy your benefits if you aren’t expected to live long. But maybe your situation changes, or your health improves, which means you can hold off on collecting and let your benefits grow a little longer.
One major pitfall to withdrawing is that you will have to pay back any benefits you have already received from the program, and that includes any spousal or dependent benefits your spouse or children received as well.
The big kicker is it has to be paid back in one lump sum.
“You can’t do it with a Visa card,” Freitag said. “You have to write a check and pay it back, and that’s very difficult for people to do, particularly when you’re talking about sizable amounts of money.”
It could amount to a hefty chunk of change if you withdraw your benefits closer to the 12-month deadline. If you were receiving the Social Security Administration’s monthly average of $1,503 per month, that would mean having to pay back $18,036 for 12 months of benefits.
Medicare coverage can also be withdrawn, but it’s not a requirement when you end your Social Security benefits. You won’t be automatically enrolled in Medicare at 65, though, if you withdraw from Social Security before then.
Suspending Social Security Benefits
If you don’t want to place a full-stop on your Social Security and reapply at a later date, you may want to consider suspending your benefits. This can be especially helpful if you have already passed the 12-month withdrawal deadline.
You can suspend your benefits by calling or writing to the SSA, but you can only do it if you are at or beyond your full retirement age. Those benefits will restart automatically when you reach 70, or you can contact the SSA to resume receiving benefits again at any time. Any supplementary benefits for spouses or dependents will be suspended as well.
Suspending in this way can help you receive more retirement income credits, which will boost your overall benefits as well.
Knowing some of the limitations of cancelling your Social Security benefits can help you in crafting a retirement savings plan that works for you. Of course, you should consider talking to your financial adviser before making any decision like stopping your Social Security benefits.
• You can find all of the latest and most important news about Social Security here on Money and Markets.
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