When it comes to retirement, one of the most important decisions you might have to make is figuring out when to file for Social Security.
Your monthly benefit will be determined based on your earnings history using a special formula. But your filing age will also be a factor in how much your monthly checks amount to.
If you file for Social Security at full retirement age (FRA), which is 67 if you were born in or after 1960, you’ll get your exact monthly benefit amount based on your wage history. But you can also file for Social Security earlier or later.
Age 62 is the soonest you can claim Social Security. On the flipside, you can grow your Social Security benefits by 8% for each year you wait beyond FRA, up until you turn 70.
Claiming benefits early usually reduces them for life. But thanks to a lesser-known rule, that doesn’t automatically have to be the case.
Social Security’s do-over rule could put a lot more money in your pocket
You’ll often hear that if you claim Social Security ahead of FRA, you’ll be stuck with a smaller monthly benefit for life. But that’s not automatically true.
Social Security has a do-over option a lot of retirees don’t know about. If you claim Social Security and regret your decision after the fact, you can withdraw your application for benefits, repay all of the money you received, and file again at a later point in time. And in some cases, the payoff for doing so could be huge.
The average monthly Social Security benefit for retirees today is $2,079. If that’s the benefit you’re eligible for at FRA but you file at age 62 instead, you’ll shrink your monthly payments to $1,455.
On the other hand, if you file for Social Security at 70, your monthly benefit increases to $2,578. So if you claim Social Security at 62 and regret that decision immediately, it pays to undo your filing. If you then sit tight and don’t file until age 70, you could wind up with an additional $1,123 a month in Social Security for the rest of your life.
An option that’s not so easy to exercise
Of course, the challenge in undoing your Social Security claim is having to pay back all of the money you were sent in benefits. If you regret your filing decision a month or two in, you may not owe the Social Security Administration such a large sum. But if you undo your claim closer to the one-year mark, you could be looking at owing a lot of money.
That’s why it’s often best to undo your filing decision early on. Or, better yet, get your filing decision right in the first place.
Before you claim Social Security early, run the numbers to see how much doing so will reduce your monthly checks. That alone might serve as motivation to wait, in which case you won’t have to deal with the process of undoing your claim or worrying about coming up with the money.
Top Gaining Stocks
Top Losing Stocks