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Claimed Social Security Too Early? This Loophole Could Spare You a Lifetime of Financial Struggles

By Maurie Backman – Oct 3, 2020 at 10:36AM

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Filing for benefits too soon could leave you with a lower monthly income for life -- unless you take advantage of one lesser-known Social Security rule.

There's a reason so many seniors wind up claiming Social Security at 62: It's the earliest age to file for benefits. But there's a downside to signing up for Social Security that young. Doing so will slash your monthly benefit for life.

Your monthly benefit is calculated by taking your average monthly wage over your 35 highest-paid years in the workforce, adjusting that wage for inflation, and incorporating that number into a special formula. You're entitled to your monthly benefit (all of it, that is) once you reach full retirement age (FRA), which varies based on your year of birth, as follows:

Year of Birth

Full Retirement Age

1943-1954

66

1955

66 and 2 months

1956

66 and 4 months

1957

66 and 6 months

1958

66 and 8 months

1959

66 and 10 months

1960 or later

67

Data source: Social Security Administration.

For each month you claim Social Security prior to FRA, your monthly benefit gets permanently reduced, and if you file at age 62, you'll slash that benefit by 25% to 30% -- for life. That's why so many seniors are advised not to claim benefits early.

Older man with serious expression standing outside building

Image source: Getty Images.

But what if you've signed up for Social Security before FRA and regret it? If so, you may not necessarily be out of luck, but you'll need to act quickly.

Getting around a lower benefit

One lesser-known Social Security rule is that you're allowed one do-over in your lifetime with regard to claiming benefits. If you file too soon and decide that you don't want to get stuck with a lower benefit for life, you can withdraw your filing within a year and repay the Social Security Administration (SSA) all of the money it paid you. That includes spousal benefits that may have been paid based on your record. Once you take that step, you'll have the option to sign up for benefits at a later age and avoid a reduction.

What if you can't get a do-over?

Imagine you filed for Social Security at 62 but didn't realize what a poor decision that was until age 63 1/2. At that point, you're beyond the 12-month mark for withdrawing your benefits application and repaying the SSA. However, you still have options.

Namely, you can suspend your Social Security benefits at FRA and boost them via delayed retirement credits. Delayed retirement credits are worth 8% a year and apply until you reach 70. If you suspend your benefits for two years, you won't collect any payments during that time, but once you do start receiving benefits again, they'll be 16% higher.

Be careful when you file

Chances are, you'll rely heavily on Social Security to pay the bills in retirement, so the more thought you put into filing for benefits, the less likely you'll be to regret that decision. That said, if you've already filed too early and are stuck with a lower benefit as a result, explore your options for boosting it. You may need to make adjustments, like going back to work temporarily, to increase your monthly Social Security payout. But seeing as how that benefit will remain in effect for the rest of your life, it could be a sacrifice worth making.

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