Article Spotlight

 

In this series we analyze current financial articles and explain how the conclusions of the article relate to our investment strategy.

Filed Social Security too early: What to do when you wish you hadn’t

Most people choose to take Social Security at age 62, electing to receive reduced benefits.  Another option is to wait until the “Full Retirement Age” (which varies based on your birth date).  Each year you choose to forego accepting Social Security (up to age 70) boosts your benefits by 6% to 8%. Keep in mind this is a real rate of return because Social Security benefits are indexed with inflation each year through the cost-of-living (COLA) adjustments.  Earning a real rate of return of at least 6% per year is particularly attractive in the current low-rate environment.

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What happens if you instead chose to take lifetime reduced benefits by starting social security income at age 62, and you now want to undo this election?  This article discusses three strategies to accomplish this. We will focus on two options:

  1. Withdraw your claim
  2. Suspend your payments

Withdraw your claim

If less than 12 months have passed since you claimed Social Security benefits, you can withdraw your claim and pay back all of the payments you have received thus far.

Situations when this might make sense include:

  • You determine you don’t really need the Social Security benefits now because you overestimated your expenses
  • You landed a new job or part-time work that will cover your expenses
  • You received an inheritance you want to use for expenses

For more information on withdrawing your application, see the ssa.gov website.

Suspend your payments

Perhaps more than 12 months have passed since you claimed Social Security benefits, and you can no longer withdraw your claim.  Starting at your Full Retirement Age, you can suspend your reduced payments, and receive an 8% annual increase in accrued benefits until age 70.  From your original claim age through FRA, you would receive benefits, but they would cease from FRA until age 70. At 70, your benefits would begin again, at an increased benefit rate.

For more information on suspending payments, see the ssa.gov website.

Choosing when to take Social Security is one of many ways to maximize your retirement.  If you have questions about Social Security strategies, such as the “file and suspend” strategy, or other ways to maximize your retirement, check out Empirical’s  Five Secrets to a Successful Retirement.

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About Ethan Broga

Ethan is head of the Financial Planning Committee which oversees the development and expertise of Empirical’s financial planning recommendations. He holds an M.S. in financial planning and is a Certified Financial Planner®.

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