Title: Unveiling Two Underrated Social Security Rules Every 62-Year-Old Should Know
Navigating the decision to claim Social Security at a certain age can be challenging for many seniors. Claiming at 62, when most individuals become eligible, is a common choice. This move provides an immediate cash influx to boost any existing income and retirement savings, potentially enabling an early retirement.
However, there's a catch. Claiming benefits early results in a permanent reduction of your monthly cheque. You might receive around 57% of the benefit you'd have received had you waited until age 70, when your payments reach their maximum.
Numerous studies suggest that individuals would often be better off hanging on till age 70. Yet, everyone's circumstances differ, so early retirement might make more sense for some. Adding to the complexity is the likelihood of personal circumstances changing after claiming Social Security, potentially leading to suboptimal outcomes.
Luckily, the Social Security Administration understands the gravity of this decision. They provide some flexibility to individuals who change their minds down the line. Let's explore two such safety nets:
Withdrawal Option: An "undo" Button
If you're on the brink of turning 62 and considering claiming Social Security, it's crucial to be aware of the withdrawal option. Here are the rules:
- You have a year from the moment you start receiving Social Security to withdraw your application by filing form 521.
- If the Social Security Administration approves this withdrawal, you'll need to pay back all the benefits you've received so far, including any payments for Medicare premiums or taxes.
- They'll inform you exactly how much you owe when they accept your withdrawal request. If you find yourself unable to repay this amount, you have 60 days to cancel the approved withdrawal application.
If the Social Security Administration approves your withdrawal, you'll effectively undo your initial claim. You'll become eligible for a higher monthly benefit, and this amount will increase every month you delay reapplying, up until age 70. It's important to note that you can only withdraw your application once in your lifetime. Once you claim benefits again, you're stuck with your decision, even if you change your mind later.
The Suspension Rule: Actively Delaying Your Retirement
If you've either already withdrawn your application or gone past the 12-month deadline, you can still take advantage of another rule from the Social Security laws. When you reach your full retirement age, you can choose to suspend your benefits.
Your full retirement age varies depending on your birth year. Individuals born between 1943 and 1954 became eligible at 66, while people born in 1960 or later must wait until 67. If you decide to suspend your benefits, you'll stop receiving a monthly cheque. Instead, the government will credit your account with delayed retirement credits, which are about 2/3 of a percentage point for every month you delay benefits.
You'll stop accruing delayed retirement credits at age 70. Suppose you have a full retirement age of 67 and decide to suspend your benefits the month after turning 67. At that point, you could increase your monthly benefit by 24%. This extra payout, on top of the annual cost-of-living adjustment (COLA), can significantly boost your overall retirement income.
Suspending benefits has a few drawbacks. First, anyone receiving benefits based on your earnings record (such as a spouse or minor child) will switch to relying on their own record, if eligible. Second, if you're on Medicare, you'll have to pay your Part B premiums out of pocket, as the Social Security Administration usually deducts these payments from your monthly cheque.
If you don't resume your benefits before reaching age 70, the Social Security Administration will automatically restart your benefits the month you turn 70, granting you the higher payout.
Make a Confident Decision: You're Not on Your Own
Whether you're unsure about starting Social Security or are already elsewise, being aware of the withdrawal and suspension options can help you avoid being stuck with the wrong decision. Understanding the rules allows you to act wisely now and make any necessary adjustments in the future.
In the context of retirement finance, some individuals may want to reconsider their decision to claim Social Security benefits early due to the permanent reduction in monthly payments. This might lead them to explore the withdrawal option, which allows them to reverse their claim within a year and become eligible for a higher monthly benefit (assuming they can repay the benefits received).
After the year-long window for withdrawing the claim, seniors can still make use of the suspension rule, which allows them to stop collecting benefits temporarily at their full retirement age. By doing so, they can accrue delayed retirement credits, increasing their monthly benefit amount for each month they delay reapplying, up until age 70.
