Just because you filed early does not mean you are stuck with a small retirement income check.
Many people think the next step after retiring is to file for Social Security retirement benefits. You are told if you wait until full retirement age you may not be around to collect it. The allure of a guaranteed lesser amount now versus a greater benefit later can persuade many to claim benefits at age 62 or as soon as they retire.
You owe it to yourself and your family to become familiar with the various strategies that are available, as the difference in benefits can reach many thousands of dollars. Social Security strategies are not a science; when we will die is a big factor in determining when we should claim benefits. If we knew the exact date of our death, the decision process would be a simple math equation.
Let’s take a look at your options if you decided to take Social Security early. Just because you filed for Social Security benefits at an early age and are receiving a smaller benefit than anticipated does not mean you are stuck with the same small retirement income check. There are options to withdraw or suspend the benefits you are currently receiving, claim them later and receive a larger check.
If you claimed within the past year: If it has been less than one year since you claimed Social Security retirement income, you have the right to withdraw your application. If you do this, you must repay all the benefits you and your family received. For example, if your spouse claimed on your record, you would have to pay back the amount you received as well as the amount your spouse received. Any amount withheld from your benefit, such as Medicare premiums or voluntary tax withholding, would also need to be paid back. This method is mainly beneficial to individuals who claimed benefits before their full retirement age. If you claimed at or after your full retirement age and it has not been more than a year, the next strategy could work better.
If it has been more than one year since you claimed: If it has been longer than one year since you claimed Social Security retirement income, your age will determine whether you can stop receiving payments. If you are younger than your full retirement age, there is nothing you can do. However, if you are at or past your full retirement age, you have the right to “voluntarily suspend” payments. In this scenario, you do not pay back the income you received in the past. Instead, the Social Security Administration (SSA) simply stops making payments to you. After benefit payments stop, you can reclaim at any time in the future. For each month that you delay receiving benefits, the SSA will credit you two-thirds of one percent (or eight percent per year) if you were born after 1943.
The case for filing at age 62: A widow can file for and receive her own reduced retirement benefit when she reaches age 62 and then receive her full survivor benefit without any reduction at full retirement age. This example would work for a widow with little or no earned income who is not currently employed and is earning significantly more than the annual earnings cap restriction. In 2015, individuals who are younger than full retirement age for the entire year and who collect Social Security while continuing to work forfeit $1 in benefits for every $2 earned over $15,720.
In the case of a higher-earning widow, she may be better off collecting her full survivor benefit at full retirement age when the earnings cap disappears and then switching to her own higher retirement benefit at age 70. The key to this strategy is the survivor benefits are frozen in time. They do not earn delayed retirement credits if benefits are postponed beyond full retirement age. Retirement benefits do accrue delayed retirement credits, as stated earlier.
If you filed before learning about the potential disadvantages of claiming Social Security retirement income early, you may still be able to reestablish a larger monthly benefit. Not only can this be beneficial to you, it might also benefit your spouse now (via spousal benefits) or later (via survivor benefits). The strategies discussed are very broad, and there are additional factors to consider. If you would like more information about withdrawing your application or voluntarily suspending benefits, please consult your financial advisor. iBi
Daryl Dagit is a financial advisor with Savant Capital Management. Savant’s Peoria office is located at 7535 N. Knoxville Avenue, Suite C.