One of the most important decisions you'll make planning for your retirement is when to claim Social Security.
Most people can claim retirement benefits starting at age 62. There are a lot of good reasons to claim as soon as possible, but there are just as many, if not more, reasons to hold off. The primary benefit of waiting to claim Social Security is an increase in your monthly benefit. If you wait until age 70, you'll receive a monthly check about 77% bigger than if you claim at age 62.
To make matters even more complicated, your Social Security claiming decision is inherently based on your expectations for the future. Unfortunately, most people don't have a perfectly clear crystal ball, and the future rarely plays out as expected. And when circumstances change, we may want a do-over on one of the biggest decisions in all of retirement planning.
Thankfully, the Social Security Administration (SSA) understands the importance of the decision of when to claim your benefits, and there's a bit of leniency built into the program. But you have to know the rules in order to take advantage of them. Here are two important Social Security rules everyone needs to know before they reach 62.
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You can push the reset button
One rule that could completely save your retirement plan is the ability to withdraw your application within one year of your original application for Social Security benefits.
If you make a mistake, realize you claimed too early, and you recognize it soon enough after you start receiving benefits, it's a straightforward process to hit the reset button. You just have to file form 521 with the SSA.
If you truly want to reset things, though, you'll also have to repay everything you've received from Social Security up to that point. That includes the monthly benefits plus any withholdings from your check like Medicare premiums or taxes if applicable. The SSA will let you know exactly how much you need to repay when they send your approval to withdraw your application.
The repayment requirement can be quite a burden on some retirees. If you applied for Social Security because you needed the supplemental income, but your circumstances change and you realize you don't need it anymore, you might not have the cash on hand to repay your initial benefits.
If you realize you're unable to repay your benefits, or simply change your mind again, you have 60 days to cancel an approved withdrawal.
The "reset button" is exactly that. It's as if you never claimed benefits to begin with. When you successfully withdraw your application and repay your benefits, your future monthly benefit will grow with each month you delay applying for benefits.
Another important caveat about withdrawing your Social Security application is that it's a once-per-lifetime option. If you apply again in the future, there are no more do-overs.
The good news is, anyone can take advantage of the second rule to mitigate the impact of an early filing.
What to do if you can't withdraw your application
If you're past the deadline to withdraw your application or you can't afford to repay your benefits to complete your withdrawal, you still have another option. You can suspend your benefits upon reaching full retirement age (or later).
Your full retirement age likely ranges between 66 and 67. Anyone born between 1943 and 1954 reached full retirement age at 66. Your full retirement age increases by two months for each year you were born after 1954 until maxing out at age 67 for anyone born in 1960 or later.
When you suspend your benefits, you'll begin accruing delayed retirement credits. Those credits will increase your monthly benefit by 2/3 of a percentage point for each month you delay up until age 70. That means someone with a full retirement age of 67 can increase their monthly check by 24% by suspending their benefit for the maximum three years. You'll also get a boost from the annual cost-of-living adjustment (COLA), increasing your benefit further.
It's important to remember a few details, though. If you suspend your benefits, it means anyone receiving benefits based on your earnings record will no longer receive those benefits. A spouse will revert to receiving benefits on their own record (if eligible), and an eligible child may no longer receive anything. It's important to keep in mind how your decision will impact the entire household's income.
Additionally, if you're enrolled in Medicare, the SSA will automatically withhold your Part B premiums from your Social Security checks. But if you stop receiving Social Security, you'll be responsible for paying Medicare premiums directly. Make sure you budget for that. Medicare Part B premiums start at $174.70 per month in 2024.
Finally, you can resume and re-suspend your payments whenever you like before reaching 70. Your benefits will automatically resume at age 70 if you haven't restarted them already.
Be willing and able to change your strategy
Your circumstances will often dictate when you claim Social Security benefits. But when those circumstances change, it's important to be able to change with them. Knowing the above rules can help you make the most of a change in circumstances.
