Claiming Social Security right when you turn 62 may sound appealing at first, as you get an additional source of income that can help with expenses. But this same decision will greatly limit how much your Social Security benefits grow in the future.
Some people realize that they have taken Social Security early after doing the math and seeing how much of their benefits have been withheld. Fortunately, recent adopters can still click the “do more” button.
What does it mean to call ‘too early’
You can claim Social Security benefits before you reach full retirement age, which is 67 for people born in 1960 or later. While this may be the right move for someone with health issues who can’t work, or someone with immediate cash flow issues, it’s not right for everyone.
Claiming Social Security can put you at a disadvantage later in life, especially if you live into your 90s, as you lock in a lower benefit. It may also make less sense for full-time workers to enroll in Social Security since a portion of their benefits will be eligible for withholding, depending on how much they earn.
Some people regret claiming Social Security months after taking it out, wishing they had waited until their retirement years. You get the highest Social Security benefit if you wait to take it until you’re 70.
One-year withdrawal rule
If you recently took out Social Security, you may be eligible to do something else. The Social Security Administration allows certain beneficiaries to cancel their application within 12 months of approval. If your request to cancel is approved, you will stop receiving Social Security and can apply again in the future. This reset allows Social Security to be consolidated, so you can protect higher benefits in the future.
You can use Form SSA-521 to submit this request, but you can only do it once. If you successfully use the 1-year-at-63 rule, you won’t be able to use it again if you decide to take Social Security at age 67 and wish you had waited until 70. Make sure you stay in touch with Social Security and monitor the progress of your claim, because it’s not something that happens automatically.
You may have to restore everything
The reset button is great for people who regret taking it out and wish it were the other way around. However, you must pay any Social Security payments you have already received.
Social Security will no longer accept your claim if you only provide the minimum payment. Payments may also include benefits paid to family members on their records, as well as money withheld for Medicare premiums, taxes, and garnishments. You may have to pay the cost of Medicare Part A if you used it to pay for medical expenses during that time.
It is important to check your finances before using the one-year withdrawal rule. Some people will significantly reduce their money for many years if they try to pay everything back. It can be beneficial in the long run for some, but if you are forced to take out a loan, the debt and the interest that accumulates can make your financial situation worse.
If you are unsure about the long-term financial impact, you may need to consult a financial advisor to assess whether it is the right move for you.
