THINKING RETIREMENT – ANDY LANDIS-You never meant to file early for Social Security, but then you lost your job and had to. Or you always planned to file early, and later wish you hadn’t. In either case, you’re regretting the reduction in your Social Security payment. The payment if you file at age 62: 75% of what you would get by filing at Full Retirement Age , currently 66.
Guess what: there are three ways to “undo” that reduction and get you closer to the 100% you would have gotten by filing at age 66. These are little-know exceptions to what most people—even some experts—think is a permanent, life-time reduction.
Exception 1: Withdraw your claim, and start over. Anytime during the first 12 months you’re on Social Security, you can withdraw your claim and repay all payments received—with no interest charged. Then you’re treated as if you never filed at all. You could immediately re-file for Social Security, and get a higher payment because you’re a year older. Or you could postpone re-filing until a higher age and get an even higher payment.
For example, say you filed at 62 because you needed the money. You get a 75% Social Security payment. Then you receive a windfall—a new job, an inheritance, or what-have-you—and you wish you hadn’t taken the early, reduced Social Security.
You could withdraw your claim and repay the payments received, up to 12 months after filing. Poof, it’s like you never filed that claim at 62. You could immediately refile, and you’d get an 80% payment because now you’re 63. Or you could wait until age 66 for a 100% payment, or wait all the way to 70 for a 132% payment.
Withdrawal is available only in the first 12 months of Social Security, and only once per lifetime. SSA’s description is at www.ssa.gov/retire2/withdrawal.htm
Exception 2: Get a job, get an ARF. You’re probably aware that if you’re under 66 and you earn over the threshold amount ($14,640 in 2012; $15,120 in 2013), some or all of your Social Security payments will be withheld. But did you know that you’ll eventually get credit back for any payments you miss out on?
For example, say you filed at 62 because you lost your job. Your payment will be at the 75% level, to account for 48 early payments before 66. Six months later, halleluiah! You land a well-paying job. The downside is that your earnings are so high, all your Social Security checks are withheld from then on.
When you turn 66, two important changes occur. First, your Social Security payments restart, because your earnings no longer count against you at 66. Second, the payments will be at the 96% level, not your old 75% level. That’s because you’ve automatically received an “Adjustment to the Reduction Factor” (ARF). Basically, your early filing reduction—previously 48 months—is downsized to the 6 months you actually received payment. It’s like you filed just 6 months ago.
You’ll receive an ARF for every month your Social Security is withheld due to work. It’s automatic when you reach Full Retirement Age. It’s described at http://www.socialsecurity.gov/pubs/10069.html.
Exception 3: Suspend your payments, get a raise. You may have heard of “file and suspend” as a strategy to maximize Social Security payments for couples. But did you know that you can suspend your payments anytime from age 66 to 70, even if you’ve gotten Social Security for years? While the payments are suspended, they’re growing in the background at 8% per year.
For example, say you filed at 62 because you needed the money. You receive 75% payments for the next four years, and normally that would be your ongoing payment amount, too. But now you have some retirement money and expect a long life, and you wish your payments were 100%, not 75%. You could suspend your payments at 66, potentially all the way to age 70. With four years of growth at 8% per year, your payments are at the 99% level when they restart at 70. Okay, you haven’t quite gotten back to 100%, but you’re awfully close.
Any worker can suspend his or her retirement payments from Full Retirement Age (currently 66) to age 70 to get higher future payments. Suspension is described at www.ssa.gov/retire2/suspend.htm.
The bottom line: early Social Security payments are reduced, but not necessarily forever. You can use these three exceptions to “undo” or minimize the reduction.
As always, this article is informational only. Only SSA can make official decisions on your payments.