Editors' pick: Originally published July 22.
If you're like most people, you'll opt to start receiving Social Security benefits as soon as you can, usually at age 62. If you're like some people, shortly after that you'll wish you hadn't. Is there anything you can do?
There is. You can file to withdraw your application for Social Security benefits as long as you do it within 12 months of when you get your first check. Then later you can re-apply. There are catches, such as that you have to pay back all the benefits you've received, and you can only do this once in your life. But the Social Security do-over is a real option.
There are several reasons why you might want to unwind your decision to start taking Social Security benefits. Sometimes people retire, because they don't like their jobs, then shortly after find renewed interest in working for money. "It may be one of their hobbies that turns into a career," says Ted Sarenski, a Syracuse, N.Y.-based CPA/PFS and member of the New York-based American Institute of Certified Public Accountants Personal Financial Planning Executive Committee.
Social Security do-overs may also be prompted by the arrival of an inheritance, proceeds paid from life insurance on a deceased spouse or some other financial event that means the retiree doesn't need the Social Security benefit, says Sarenski, who teaches seminars on Social Security for accountants.
However, the biggest reason for wanting to withdraw a decision to take Social Security benefits is that the recipient has learned about the financial benefits of waiting to take the benefits. Basically, the longer you wait to apply benefits, the higher the monthly amount.
From age 62 to age 66, for instance, waiting typically increases the monthly benefit by 6.25% for each year you wait. From 66 to 70, the increase is typically 8% a year, or 32%. The exact amount depends on the year you were born.
Most people who take benefits early and then want to withdraw their application do so after learning about the benefits of waiting, says Sandy Young, a Hampstead, Md.-based insurance agent who conducts seminars on retirement planning. "In a nutshell, it's a lack of education, not knowing they have other options that would benefit them financially," she says. "That's when they use it the most."
Aside from the one-year limit, the other major catch to withdrawing an application is that you have to pay back any benefits you have received. If a retiree has been retired for ten months and received $2,000 per month, he would have to cut a $20,000 check to Social Security to get the do-over. Plus, Sarenski notes, the person has to pay back any benefits received by spouses or children.
A lot of people decide against withdrawal for that reason. "They're O.K. with it until I say you have to pay all that back," Young says. "Then there's a good possibility they'll say, forget that."
The other limit is that the application has to be filed within 12 months of when the first benefit check is received. But there are some options for people who wait past a year. For instance, once they reach full retirement age, normally around age 66, they can request to suspend benefits. That lets the benefit increase as scheduled from that point on, although it's not as if they'd never started receiving benefits at all.
People who decide to go back to work can also keep receiving benefits, which will be reduced by $1 for each $2 they earn over a preset amount, which for 2016 is $15,720. Once they decide to apply, or reach age 70 when benefits begin automatically, they'll be credited for the amount their benefits were reduced.
To withdraw a Social Security benefits application, visit the Social Security website and download form SSA-521. The form can be filled out without expert assistance and applications are normally approved assuming timeframe and payback requirements are met.
The benefit application withdrawal is a rarely used option, but one more people should be aware of, Sarenski says. That's because recent federal rule changes limit other methods for maximizing Social Security benefits.
"It's more important today to wait until 66 or 70," Sarenski says. "Somebody that might start at 62 is making a bigger mistake than they used to."