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Read This Before You Take Social Security Early

By Dan Caplinger - Apr 6, 2016 at 7:02AM

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Make sure you go in knowing the facts.


Image source: 401kcalculator.org via Flickr.

Making the right decision about your Social Security benefits is important to ensure that you'll be financially secure throughout your retirement years. However, too many people simply take their Social Security benefits at their first opportunity without giving a thought about the potential ramifications of their actions. Below, you'll learn about several key factors you should keep in mind as you plan out your Social Security strategy and whether it makes sense to take it early.

You only have 12 months to change your mind.
The decision on when to take Social Security is a tough one, and even the Social Security Administration acknowledges that unexpected changes can occur after you decide about Social Security that would lead you to change your mind. However, the guidelines for when you can switch your decision about your benefits have become much less lenient than they were in the past, and so when you take your benefits, you have to recognize that you'll have much less flexibility to change your mind than you might have previously had.

In the past, you could change your mind and withdraw your application at any time. As long as you paid back all the benefits you had received, the SSA would accept your application withdrawal as essentially resetting the clock on your Social Security decision.

Now, you can only withdraw your application within 12 months of applying for Social Security. After that, you're locked into your previous decision. Moreover, you can only withdraw your application once during your lifetime, so you can't repeatedly use the strategy to achieve the same result. Therefore, before you file, make sure you'll be confident about your decision within the next year so as not to lose the opportunity to change your mind if necessary.

Your decision can reduce someone else's benefits.
Most people understand that claiming Social Security early cuts their own benefits. What isn't always clear, though, is that filing early can cut other people's benefits if they claim on your work record.

Specifically, survivor benefits that your spouse and some eligible children might receive after your death are based in part on when you filed for Social Security. The earlier you file, the smaller those payments will be to your survivors. It's therefore smart to take their needs into account in making a Social Security decision. It won't always be enough to make you change what you think is best, but for some, it provides an incentive to delay taking Social Security in order to increase those eventual monthly payments to your loved ones.

There's less incentive to wait than there used to be.
At the same time, though, Social Security has recently eliminated some of the provisions that gave retirees an incentive to wait beyond the earliest age of eligibility before filing for benefits. Until lawmakers enacted rule changes late last year, using the file-and-suspend and restricted application strategies could let you increase your total family benefits over time, and both strategies made it advantageous to wait until full retirement age to apply rather than taking early benefits. Now, though, those strategies will no longer be available to anyone who wasn't grandfathered in when the law changes were made.

Accordingly, for many people, filing early is the only way to activate much-needed benefits for spouses. With file-and-suspend going away, you'll actually have to take your retirement benefits in order for your spouse to get spousal benefits on your work record. That in some cases could justify a decision to file early even if you otherwise wouldn't. That's contrary to the attitude that many policymakers have had in trying to encourage people to file later, but it also shows the unintended impacts that lawmakers have in their decisions.

Making the right Social Security decision takes a lot of thought, because the factors are individual to each person. It's smart to know all the issues involved to make sure that you make the best decision for the situation that you and your family face.

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