The Social Security benefit you receive each month might play a crucial role in your retirement finances. So it's important to sign up for benefits strategically.
You're entitled to your full monthly benefit based on your individual wage history once you reach full retirement age, or FRA, which is 67 for anyone born in 1960 or later. But you're allowed to sign up for benefits as early as age 62.
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Claiming Social Security prior to FRA will result in a reduced benefit for life. And at first, you might think that's not a problem.
But let's say you claim Social Security early and retire simultaneously. After your first few months of retirement, you may find that your expenses are higher than expected. Only now you're stuck with a reduced Social Security benefit. What to do?
Thankfully, you're not out of options in that situation. Thanks to a lesser-known Social Security rule, you may be able to make a change that allows for a higher monthly benefit -- if you act quickly enough.
You get one second chance
You might claim Social Security ahead of FRA and regret that choice shortly thereafter. In that case, all isn't lost.
See, Social Security has a do-over rule that many people don't know about. If you change your mind about collecting benefits, you can withdraw your Social Security application and repay all of the money you received in benefits within a year. Go that route, and your filing will effectively be canceled. You'll then have a chance to sign up for benefits again at a later age, thereby potentially avoiding an unwanted reduction.
Now this do-over option will only be available to you once in your lifetime. So if you take advantage of it, you'll want to be really careful the second time you file. But still, it's an option that could bail you out of a financial jam if you come to realize after filing the first time that the monthly benefit you've locked in just isn't going to cut it.
It's best to get your decision right from the start
While taking advantage of Social Security's do-over rule could help you raise your monthly benefit, the reality is that it's better to get your filing decision right the first time around. As mentioned, to get a do-over for Social Security, you need to repay every dollar in benefits you received. That's not necessarily an easy thing. And if you're unable to do that after filing early and regretting it, you'll be stuck with a lower monthly benefit for life.
Before you sign up for Social Security, get an estimate of your monthly benefit at FRA. You can do so by accessing your most recent earnings statement on the Social Security Administration's website. Then, run the numbers to see what an early or late filing will result in (keeping in mind that a delayed filing will score you a boosted benefit).
You may be eligible for a monthly benefit of $2,000 at an FRA of 67. Signing up at age 64 might seem tempting so you can retire early. But doing so will slash your benefit by 20% for life (unless, of course, you move forward with a do-over), leaving you with just $1,600 instead. If that's a sum you don't think will suffice in covering your expenses, you're better off waiting.
Of course, some people do put a lot of thought into their filing decisions only to regret their choices afterward. If you land in that boat within a year of your filing, you have options, and it's important to know that there is the possibility of a do-over. But if you can get your filing decision right from the start, that's even better.
