The decision to sign up for Social Security is one you'll need to consider very carefully. That's because your Social Security filing age will help determine what monthly benefit the program pays you for life.
If you claim Social Security at full retirement age, or FRA, you'll get your complete monthly benefit based on your personal income history. FRA kicks in at 67 for anyone born in 1960 or later.
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You can also file for Social Security before reaching FRA. Once you turn 62, you're allowed to sign up to start getting your money. But for each month you claim Social Security before reaching FRA, your monthly benefit will be reduced by a certain percentage.
Generally speaking, the monthly Social Security benefit you lock in when you file is the monthly benefit you'll continue to receive for life, not accounting for cost-of-living adjustments. But there's one scenario where you may be able to get away with claiming Social Security early without subjecting yourself to a lower monthly benefit on a permanent basis.
When you get a second chance to file
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 for Social Security before FRA but change your mind after the fact, you can undo your filing if you do the following:
- Withdraw your claim within a year of submitting it
- Repay every dollar in Social Security income you received
Clearly, that second part is a bit harder to pull off than the first. But if you're able to do it, you'll have an opportunity to claim Social Security at a later age than when you initially filed. The result? A higher monthly benefit.
Think carefully before you sign up
Many people are eager to get their hands on their Social Security income and, as such, don't consider the consequences of claiming benefits early. But once you enter retirement and your bills start rolling in, you might realize how important it is to have a higher monthly benefit. And while you can always undo your filing that one time, it's really not a solution you want to bank on.
Instead, take your time to figure out the optimal filing age. You may decide to wait until FRA so you don't face a hit to your monthly benefit that could hurt you during retirement.
You may even decide to delay your Social Security filing past FRA. You can grow your monthly benefit by 8% a year, up until age 70, by going this route.
In fact, if you end up claiming benefits early and then regret doing so because you're squeezed financially, you can take advantage of your do-over option and then wait on Social Security until your 70th birthday arrives. Depending on your circumstances, you may have to re-enter the workforce to pull that off if you retired in conjunction with your early filing. But this way, you might really manage to set yourself up with a generous monthly Social Security benefit for the rest of your life.
