A lot of thought goes into picking when you claim Social Security. Claim too early and you could leave tens of thousands of dollars on the table. Wait to claim and your health could make it so that you can't enjoy the extra money. Although deciding when to begin receiving Social Security is a decision that will depend a lot on your personal situation, it may be helpful to know that just because you claim early doesn't mean there aren't still ways you can increase your benefit later on.
Withdrawing a Social Security application
In many cases, claiming at 62 will lock you into lower monthly payments than if you wait to claim at full retirement age or later. Social Security is designed to pay out the same amount of money throughout your lifetime regardless of when you claim, so claiming early means your payments will be smaller than if you wait.
However, Social Security does give people who claim early a one-time "do-over."
If you change your mind within one year of claiming Social Security, then you can withdraw your original Social Security application. To do so, you'll need to return any money you've received from Social Security so far. Also, if anyone (such as a spouse) receives Social Security on your work record, then that person will need to consent to your decision to withdraw your application.
Assuming your pockets are deep enough to repay the benefits you've already received, withdrawing your Social Security application is the best approach to receiving a bigger monthly benefit later on.
Relying on the income limit
If you're beyond the 12-month time limit for withdrawing your Social Security application, you may still be able to increase the amount of benefits you receive in the future if you keep working full time now. That's because Social Security withholds $1 of your Social Security income for every $2 of income you earn above a specified limit. In 2016, that limit is $15,720.
Therefore, if you claim Social Security at 62 and then you land your dream job at 64, depending on your income, some of your Social Security benefit will be held back. Any money that does get withheld because of this income limit will increase the size of your monthly Social Security check when you reach your full retirement age.
This income limit applies only to people who are younger than their full retirement age, which is currently 66. Once you reach full retirement age, there's no limit to your earned income and therefore no withholding of your Social Security.
As a result, this approach isn't as desirable as withdrawing your application. However, it can allow people to receive a bigger Social Security check in the future if they decide to go back to work before reaching their full retirement age.
It may also be helpful to know that if your dream job comes with a nice paycheck, it may increase the size of your Social Security income because of how Social Security calculates benefits.
Specifically, the Social Security Administration uses your highest 35 income-earning years to determine your monthly benefit, so every high-income earning year removes a lower-income year from your work record, thereby boosting your benefit.
Tying it together
Up until 2010, Social Security allowed people to reset the clock regardless of timing. Now that a withdrawal must be done within 12 months, special care needs to be taken before deciding when to claim. Withdrawing an application is the best way to change your mind and benefit from delayed retirement credits. But if that's not an option, at least you might be able to collect a bigger benefit later because of the Social Security income limit.
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