For most retirees, Social Security doesn't just provide a check. The income they receive each month is a financial foundation tasked with helping them make ends meet. Based on 22 years of surveys from national pollster Gallup, between 80% and 90% of retired workers (at the time of each survey) relied on their payout in some capacity to cover their expenses.
The same will almost certainly be true of future generations of retired workers. Since 2001, Gallup has found that 76% to 88% of nonretirees expect to count on their Social Security check as a "major" or "minor" source of income during retirement. This means getting the most out of Social Security is increasingly important for futures retirees, which at the moment puts baby boomers (persons born between 1946 and 1964) in focus.
"Getting the most out of Social Security" means understanding how you get paid, as well as knowing the ins and outs associated with your claiming decision.
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Maximizing your Social Security benefit means understanding how you get paid
There are a number of factors that can affect how much of your Social Security benefit you'll get to keep. For instance, early filers may be subject to the retirement earnings test, while beneficiaries who earn above preset income thresholds may have their benefits taxed at the federal and/or state level.
But when boiled down to the basics, there are four components that determine how much you'll be paid as a retired worker by Social Security, assuming you've earned the requisite 40 lifetime work credits.
The first two elements go hand-in-hand: your work history and earnings history. The Social Security Administration (SSA) takes your 35 highest-earning, inflation-adjusted years into account when determining your monthly benefit. While it's important to earn as much as you can in the years you do work, it's also imperative to work at least 35 years to avoid having a $0 averaged in by the SSA for each year less of 35 worked.
The third factor that's used to determine your Social Security benefit is your full retirement age. This is the age you become eligible to receive your full (100%) payout, and it's entirely determined by your birth year. Based on the retirement age chart, baby boomers have full retirement ages that range between 66 and 67.
The fourth component, and the one I've argued has the most sway in determining what you'll receive, is your claiming age. For every year you hold off on taking your benefit, your eventual monthly payout rises by up to 8%, beginning at age 62 and continuing through age 69.
Taking your Social Security benefit prior to reaching your full retirement age means accepting a permanent reduction in your payout of up to 30%, depending on your birth year. Meanwhile, waiting until after your full retirement age can propel your Social Security check higher by 24% to 32%.
| Birth Year | Age 62 | Age 63 | Age 64 | Age 65 | Age 66 | Age 67 | Age 68 | Age 69 | Age 70 |
| 1943-1954 | 75% | 80% | 86.7% | 93.3% | 100% | 108% | 116% | 124% | 132% |
| 1955 | 74.2% | 79.2% | 85.6% | 92.2% | 98.9% | 106.7% | 114.7% | 122.7% | 130.7% |
| 1956 | 73.3% | 78.3% | 84.4% | 91.1% | 97.8% | 105.3% | 113.3% | 121.3% | 129.3% |
| 1957 | 72.5% | 77.5% | 83.3% | 90% | 96.7% | 104% | 112% | 120% | 128% |
| 1958 | 71.7% | 76.7% | 82.2% | 88.9% | 95.6% | 102.7% | 110.7% | 118.7% | 126.7% |
| 1959 | 70.8% | 75.8% | 81.1% | 87.8% | 94.4% | 101.3% | 109.3% | 117.3% | 125.3% |
| 1960 or later | 70% | 75% | 80% | 86.7% | 93.3% | 100% | 108% | 116% | 124% |
Data source: Social Security Administration.
This little-known Social Security mulligan can come in handy for baby boomers
Based on data found in Social Security's Annual Statistical Supplement, most retired workers chose to begin receiving their Social Security benefit prior to reaching full retirement age. As of 2021, 65% of the 47.29 million retired workers at the time were receiving a permanently reduced monthly payout.
For some retirees, an early claim that sees monthly benefits permanently reduced is the optimal choice. By "optimal," I mean the selection that generates the highest lifetime income from Social Security for the claimant.
For example, a person with one of more chronic illnesses that have the potential to shorten their life expectancy may benefit from an earlier claim. Likewise, a lifetime low-earning spouse could choose to take their payout early in order to allow their partners' benefit to grow over time. This way a couple can generate some household income while the larger benefit continues to grow.
However, early claims have a history of not working out. A study released in 2019 from online financial planning company United Income found that just 8% of claimants at ages 62, 63, and 64, collectively, made an optimal choice.
Thankfully, there's a silver lining for baby boomers (and other future retirees) who may regret their early claiming decision, albeit it comes with two meaningful catches.
Image source: Getty Images.
The under-the-radar Social Security do-over clause in question is none other than Form SSA-521, which is officially known as "Request for Withdrawal of Application." In simple terms, SSA-521 is a request to the SSA to withdraw your Social Security benefit claim. If approved, your early claim is undone and your benefits go back to accruing at up to 8% annually, through age 69.
This Social Security mulligan is particularly helpful for baby boomers with little or nothing saved for retirement who took a reduced payout but ultimately ended up back in the labor force not long after. Boomers that land high-paying jobs may be incented to file SSA-521 and forgo their payout in favor of a higher Social Security benefit a few years down the line.
But Social Security's all-important do-over clause does come with two very important restrictions. First, requests to withdraw or cancel your application can only be made up to 12 months after your benefit approval. If you've been receiving a Social Security check for, say, 18 months, you're well past the point of being able to utilize this mulligan. Additionally, you can only cancel your benefits application once.
The other sticking point is that you'll have to pay back every cent in benefits you've received in the up to 12 months leading to the approval of SSA-521. This also includes any benefits spouses or children may have received based on your earnings history.
While Social Security's little-known do-over clause does have its limitations, it offers baby boomers a unique chance to start over if they regret an early Social Security claim. That's invaluable, and a must-know for every baby boomer.
