Waiting until full retirement age to sign up for Social Security means avoiding a reduction to your monthly benefits. If you’re someone who expects to be pretty reliant on Social Security for retirement income, that’s an important thing.
But it’s not always so easy to sit tight on Social Security until full retirement age arrives (which is 67 for anyone born after 1960). For one thing, you might be forced out of a job sooner than expected due to layoffs or issues with your health. Or the stress of your career might get the better of you and drive you to resign.
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Social Security gives seniors the option to take benefits as early as age 62. And while you’ll face a reduction in your monthly payments for each month you claim benefits before full retirement age, you may decide, for a variety of reasons, that hit is worth taking.
But what if you file for Social Security early and regret your decision afterward? It can easily happen, and you should know that you’re not necessarily out of luck when it does.
You get a do-over
Social Security is a program loaded with rules. But one rule that many people aren’t aware of is the do-over option.
Simply put, this allows you to withdraw your application for Social Security once in your lifetime and file again at a later point in time. If you go this route, you can effectively reverse an early claim — and avoid having a reduced monthly benefit for the rest of your retirement.
There, is, however, a catch. To successfully undo your Social Security claim, you also have to repay all the money you received in benefits. And you have to take this action, as well as withdraw your application for benefits, within a year of starting Social Security.
However, you may have options for coming up with that money. Those could include tapping your home equity or even taking a withdrawal from your nest egg. And while these options clearly have drawbacks, think about the upside.
Imagine you’ve reduced your monthly Social Security benefit by $500 a month for life by claiming it early. If you’re able to undo your filing and sign up later, you could have an extra $6,000 a year coming your way for decades, depending on how long your retirement lasts. So it may be worth having your savings take the hit, or having to cash out some home equity.
Know the rules and run the numbers before you file
Social Security’s do-over rule is only one of many that a lot of retirees aren’t super familiar with. To make the most of Social Security during your retirement, do yourself a favor and read up on the program’s rules extensively — ideally, before you sign up for benefits.
It’s also a good idea to run the numbers on claiming Social Security before you commit to a filing age. Even though the do-over option exists, it can be hard to take advantage of. So if you’re considering an early filing, it’s important to do the math and understand exactly what it means for your finances on an ongoing basis.