3 Social Security do-over options – Community News
Social Security

3 Social Security do-over options

I often receive emails from financial advisors asking for advice on how to help a client reverse a Social Security application decision.

Sometimes it involves someone who applied for benefits early and now regrets getting lower monthly benefits instead of waiting for a bigger check. In other cases, a client may have waited longer than necessary to claim a benefit and is now wondering if there is a way to make up for that loss. And sometimes a customer is looking for an infusion of cash to get them through a temporary tough spot.

The good news is that there are three do-over options that a person can use to change a Social Security application decision after the fact. But each option entails specific rules. These strategies have sparked renewed interest in the wake of the Covid-19 pandemic, when some older clients had to revise their retirement plans because they had retired earlier than planned or realized they could extend their careers for a few more years by working remotely. to work.

The first bridging option concerns the withdrawal of an application for social assistance benefit. Anyone can withdraw their application within 12 months of first applying for benefits by filing Form 521.

But there is a catch. You must repay any benefits you have received, including those from family members who have received benefits on your income statement, such as a spouse or minor child. You can only withdraw your application for social assistance once, but you can reapply for the benefit later if the monthly amount would be higher.

Withdrawing an application for Social Security benefits is a little more complicated if you are already enrolled in Medicare. While you can choose to continue with your Medicare coverage, you must pay your Medicare Part B and Part D premiums directly because you can no longer have the premiums deducted from your monthly Social Security benefits.

If paying back Social Security benefits would cause financial hardship, there is another option, but a person has to wait until he or she reaches full retirement age or later. At that point, a customer suspend his or her social security benefits.

The good news is that people who cancel their benefits don’t have to pay anything back. The bad news is that their monthly Social Security benefits stop and so do every dependent family member (except a divorced spouse). During the suspension, benefits earn deferred retirement credits of two-thirds of 1% per month, for a total of 8% per year until age 70.

Deferred benefits would automatically resume at age 70, or a customer could choose to resume Social Security benefits earlier, but would only receive deferred retirement credits for the period during which benefits were suspended.

Suppose a client with a full retirement age of 66 years at age 62 claimed benefits four years earlier. He would receive 75% of his full pension benefit. If that customer stopped his benefits at age 66, his monthly benefits would stop, but he would start earning deferred retirement credits up to 32%. At age 70, his benefit would be 99% of his full retirement age (75% x 1.32).

This strategy offers additional benefits for married customers. If that client dies first, his widow will receive the highest amount as survivor benefit. A survivor’s benefit is a maximum of 100% of what the deceased employee received or to which he was entitled at the time of death.

A third option is to request a lump sum payment of a maximum of six months of benefits with retroactive effect. You must be of full retirement age or older to claim a lump-sum benefit, and the retroactive benefits cannot begin before full retirement age.

So someone with full retirement age of 66 who claims benefits at 66 and 6 months can receive benefits retroactively for up to six months, but someone with the same full retirement age who claims benefits at 66 and 3 months can receive benefits for only three months. retroactivity. Individuals who claim Social Security benefits before full retirement age are not eligible for retroactive benefits.

A lump sum payout can make sense for customers who waited past full retirement age to claim a partner or survivor benefit — both of which are worth their maximum amount at the beneficiary’s full retirement age. Unlike retirement benefits, partner and survivor benefits do not earn deferred retirement credits.

Flat-rate payout requests also make sense to a customer in need of immediate cash. And here’s another strategy: After receiving a lump sum, that client can then voluntarily suspend benefits and earn deferred retirement credits up to age 70, increasing future monthly benefits.

(Questions about Social Security rules? Find the answers in Mary Beth Franklin’s 2021 ebook at: MaximizingSocialSecurityBenefits.com.)

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