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Q&A: I applied for early benefits and now regret the decision. Is there anything I can do?

Deciding when to start Social Security benefits has lasting effects on not only the amount of your monthly benefit but can also have a big impact on your lifetime benefit. If you started receiving benefits before 67 and wish you had waited, you do have options.

Here are some interesting statistics that come directly from the Social Security Administration.

First, 34 percent of those who turn age 62 take their benefit immediately. They believe that taking checks for a longer period of time is better than waiting for Full Retirement, or later.  Second, according to the SSA, over 75 percent of those taking benefits do not maximize their potential household income with regards to Social Security. Many of those who are not maximizing their income are doing so because they chose to take their benefit early.

I would suggest a change in the way you look at taking benefits early. In many other phases of life, “early” is good. You were “early” to the concert and got front row seats. You were “early” to the buffet and they had not run out of food. But “early” to cash in on your Social Security is often a costly decision. So I suggest reframing the way you think about when to collect.

If you collect before Full Retirement Age, I call that the “penalty” phase. This is due to the fact that not only do you potentially cost yourself income later, but it also has consequences if you are married and your spouse needs a survivorship income. It could cost the surviving spouse thousands of dollars in income and impact their retirement lifestyle.

So, if it’s been less than 12 months since you first applied, you can withdraw your application and repay the benefits you received. You will then be free to reapply at any time in the future.

If it’s been more than 12 months, and you are now over 67 (depending on your birthday), you can suspend your benefit and earn the 8 percent annual delayed credits on the current amount.

Example

Jim applied for Social Security at 62. His primary insurance amount (PIA) is $2,000. (The PIA is the amount he would receive if he claimed his benefit at FRA.) Because he claimed at 62, his benefit is 75 percent of $2,000, or $1,500. When he turns 66 he can suspend his benefit and earn 8 percent annual delayed credits on the $1,500. When he turns 70 he can claim his benefit and raise his permanent benefit to $1,980 ($1,500 x 1.32 = $1,980). Note that if Jim suspends, no spousal or dependent benefits can be paid on his record while it is in suspension. 

If you are under full retirement age you may not voluntarily suspend your benefit. However, you can achieve the same result by going back to work.

Mark Singer, CFPⓇ, lives in Swampscott and has been in the financial industry for over three decades. If you have any questions contact him at 781.599.2660 or mark@55retire.com. The content was developed in conjunction with Elaine Floyd, CFP®.

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