Whenever I play golf with my brother’s we’re allowed to take 1 mulligan per side, on a tee shot we didn’t particularly like (out of bounds, in the water or in the trees as an example) or in layman’s term we can have one do over on the Front 9 and one on the Back 9. You only get one per 9 holes and if you don’t use it you lose it, no carryovers!
When it comes to claiming Social Security, you also get to take advantage of the Mulligan Rules and take a do over should you make a mistake or change your mind after you’ve filed for benefits;
WITHDRAW one’s application
If you claimed benefits and want to stop them for any reason, you can withdraw your
Application if you do it within 12 months of the request date. You will fill out form SSA-521 and submit it to SSA. You will then be notified as to acceptance and you will have to payback every dollar that you receive since claiming. You can only Withdraw your application 1 time!
Real Life Examples of why one might WITHDRAW:
- Loss of a Job, but then getting another job within 12 months of applying for benefits
- Claiming benefits prior to FRA (Full Retirement Age) and not realizing that besides a penalty / reduction in benefits since you claimed early you are subject to the Earning Test (lose $1 for every $2 your EARN over $18,960 in a year). The benefits withheld will be added back to your benefits at FRA, but if you are working you shouldn’t claim benefits!
- Claiming benefits just because you can! 40% of American’s still claim at age 62 for fear that they won’t be there at a later date, concerned of dying too soon or they just want their money back. Only thru education and showing them the long term consequences of claiming early can one hopefully change their mind and Withdraw the application.
Cost of Claiming Early
- The difference between claiming at 62 vs 70 is a DOUBLE, in other words if your check at 62 is $2,000 / mo. at age 70 it would be $4,000 / mo.
- The breakeven is approximately 10 years between claiming at 62 vs 70
- The Spouse inherits the greater of the two benefits, as an example if the husbands check is greater and he dies first, she would inherit his check whatever it was at the time of his death.
- If either spouse lives into their 90’s of beyond there could be a $500,000 cumulative difference in lifetime benefits!
NOTE: If one misses the 12 month cut off date, they can no longer withdraw their application
SUSPEND one’s benefits
Once you’ve reached your FRA (Full Retirement Age) you can Suspend your application and earn delayed credit of 8% per year while waiting until age 70 before starting one’s benefits again!
Real Life Examples of why one might SUSPEND:
- Don’t need the money at this time and want to earn the 8% delayed credits
- In today’s low interest rate environment, with record high stock prices and tax brackets at historical lows in might make more sense to draw down on Qualified Assets (IRA’s, 401k’s, etc.) and delay one’s Social Security and earn the 8%
- An individual who might have claimed prior to FRA and is receiving lifetime reduced benefits, might decide to SUSPEND their benefits and earn the delayed credits to make up the penalty of claiming early.
- A surviving spouse might claim survivorship benefits, while postponing their own benefits until age 70.
- A person who has been on SSDI who reaches FRA, but can now Suspend their benefits and earn the delayed credits.
- An individual who claimed early and who has been subject to the Earning Test and was unable to WITHDRAW their application can now SUSPEND and earn the delayed credits.
I had a client call me Tuesday who is now at FRA who I consulted with a couple of years ago when we decided the best course of action would be for him to delay benefits until age 70 since his wife is 13 younger. However last year he had an illness and had to deplete his retirement savings, since he couldn’t work. He is now healthy and looking for employment, but they are in need of the $3,000 / mo. Social Security benefit. We applied for benefits and requested retroactive 6 months (maximum period or FRA, whichever is less). He will receive approximately $18,000 to replenish his saving and $3,000 per month going forward. Should he find a job, he can then SUSPEND his benefits and earn the delayed credits.
When the only certainty in life is uncertainty, it’s important to be educated and know all your options and to treat Social Security as a resource within a total financial plan.
It’s hard to believe we’ve come to the end of another year, where does time go? Next year everyone born in 1960 will be eligible for Social Security! My calling with your assistance is to make sure they understand all aspects of Social Security claiming!
Merry Christmas – Happy New Year!