It’s not too late to reverse decisions about Social Security that were made hastily early in the Covid-19 pandemic.
Anecdotal reports indicate that a number of people age 62 or older filed to claim Social Security retirement benefits after the economy dipped earlier this year. Their plans had been to wait to claim retirement benefits, perhaps for years. But they lost their jobs or their incomes declined. The likelihood of finding another job or replacing lost income seemed bleak. So they revised the plans and claimed their Social Security benefits.
Their economic situations might have changed for the better, or might improve in coming months. They might regret claiming their retirement benefits early. If so, there are options available to them.
Lifetime Social Security benefits are maximized for many people when the claim for benefits is delayed as close to age 70 as possible. Many who claimed benefits before 70 could reverse that decision and lock in higher lifetime benefits later.
Social Security isn’t always a once-in-a-lifetime decision. Most people have two opportunities to change their Social Security retirement benefit decisions.
Within the first 12 months of when you claim Social Security retirement benefits, you can obtain a fresh start. This is a great solution for someone whose income declined temporarily in 2020 because of unemployment or a business downturn. You can claim Social Security benefits and cancel them after things improve.
To receive the fresh start, withdraw your application for benefits within 12 months after claiming benefits. Then, you’ll be treated as though you never claimed benefits. When you claim benefits later, you’ll receive the delayed retirement credits that increase benefits based on your age the second time you claim them.
There are two keys to this strategy. The first key is you must withdraw the application for benefits within 12 months of when you filed it. Know what the deadline is when you file to claim benefits, so you’ll be able to act in time. Miss the 12-month deadline and you lose the ability to withdraw the application.
The second key is you must repay all the benefits you were paid. You won’t owe interest or a penalty. But you must repay the gross amount of benefits paid in order to withdraw the application.
The second opportunity to modify the decision to claim benefits is available any time after reaching full retirement age (FRA).
After reaching FRA, you can ask that the benefits be suspended. Social Security will stop paying benefits until you request that they resume. Social Security will automatically resume paying the benefits at age 70 if you haven’t already requested they be resumed.
Under this strategy, you don’t have to repay any benefits received. But you won’t receive delayed retirement credits for the time between when benefits began and when they were suspended.
You will, however, receive delayed retirement credits for the time the benefits are suspended. This will increase your final retirement benefits above what you were receiving at the time benefits were suspended.
The amount of the increase will be based on how many months the benefits were suspended. For people born in 1943 or later, each year benefits are delayed past FRA increases benefits by eight percent, or each month of delay increases benefits by two-thirds of one percent.
FRA is based on the year you were born. Full retirement age is 66 for those born in 1943 through 1954. For those born in 1955, FRA is 66 and two months. Those born in 1956 have an FRA of 66 and four months.
Let’s say you are 63 today and need to replace some lost income. You can claim Social Security retirement benefits to begin immediately. If within the next 12 months you find a way to replace the lost income, you can withdraw the application for Social Security benefits and repay the benefits received.
If the income isn’t replaced before 12 months have passed or you can’t repay the benefits received, you continue to receive the benefits.
At FRA, you can reevaluate the situation. If you can do without the Social Security benefits for a while, request to have the benefits suspended. Let the delayed retirement credits accumulate during the suspension while you rely on other income for your spending needs. Have the benefits resume at age 70, or earlier if you need the income.