Social Security Do-Overs: How Do You Fix a Retirement Planning Mistake?

Social Security benefits constitute a big part of many retirement plans. Advice abounds about how and when you need to file. What if you goof?

Generally, you can file for your Social Security retirement benefits when you reach age 62. Most financial advisors recommend you delay filing to better maximize your lifetime benefits.

Let’s say that’s the advice you followed when you first filed. After all, you paid into the system for your entire working life and you deserve to get the money back out, right? Plus, who knows when Social Security will go bankrupt?

Then a couple of years pass and you realize that taking early benefits short-changed you and your spouse. Turns out you didn’t need that money at 62 and you realize that no, Social Security will likely not disappear, at least in your lifetime.

Complete do-over options for Social Security ended some four years ago. Under today’s rules, you have three options:

Within a year

If within 12 months of your filing date you want to rescind your filing, just file Form 521, “Request for Withdrawal of Application,” with the Social Security Administration and pay back all benefits you received.

You can exercise this option only once in your lifetime. You are free to file again immediately or anytime in the future.

Suspend benefits at your Full Retirement Age (FRA)

When you reach FRA – age 67 for anyone born after 1960 – you can suspend receiving benefits and allow your record to accrue Delayed Retirement Credits (DRCs), which are roughly an increase of 0.67% per month of delay past your FRA.

If you start benefits at 62, for example, your reduced benefit is $750, a 25% reduction from your full benefit at your FRA. If you suspend your benefit at FRA and delay your benefit to 70, you receive a further 32% increase to your benefits.

This ups your retirement benefit from $750 up to $990, almost the same as if you wait until FRA to file in the first place. The key: You must wait until FRA (66 for folks born before 1955, by the way) before you can suspend.

Work it off

If you still work between when you file and your FRA, the amount of money that you earn can help improve your future benefits due to an earnings limit when collecting Social Security retirement benefits while still younger than your FRA.

Your benefits drop one dollar for every two dollars you earn over this year’s threshold of $15,480. Those reduced dollars are added over the years and the quantity of months’ benefits reduced are then added to your record when you reach FRA.

For example, say your benefit is $1,500 per month after you start receiving benefits at 62. Over the four years between 62 and 66, you earn $20,000 over the annual earnings limit each year; you return to Social Security $10,000 of the benefits each of those four years.

The total you return – your reduction – from your benefit is $40,000. That works out to 26 months’ benefits.

When you reach FRA, Social Security adjusts your benefit amount according to those 26 months and you receive a benefit as if you filed at 64 years, two months old: $1,756 a month.

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Written by Jim Blankenship, CFP, EA. Jim Blankenship is an independent, fee-only financial planner at Blankenship Financial Planning in New Berlin, Ill. He is the author of An IRA Owner’s Manual and A Social Security Owner’s Manual. His blog is Getting Your Financial Ducks in a Row, where he writes regularly about taxes, retirement savings and Social Security.

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