Q. I was under the impression that when you reach a certain age, you have the right to begin receiving Social Security benefits and that the earlier the age, the less you receive by way of benefits. This seemed rather simple, but I have recently been told there exists not-so-known rules within the Social Security laws and rules that can be utilized to maximize retirement benefits. I also learned that if you don’t act within a specific time frame, you might waive your right to claiming these benefits later on. I would like to learn more about claim strategies.
A. The complexities of the Social Security retirement rules can be overwhelming. This is especially true as it relates to the advantages and disadvantages of choosing the best claim-date given your specific situation and retirement needs.
Timing of your claim start-date is extremely important. The strategy you choose will determine the amount of Social Security benefits you will be eligible to receive over the course of your remaining years. On average, the value of a completely paid-out social security retirement claim can be worth a million dollars or more. So, depending on a variety of factors, choosing a strategy can save or cost you literally hundreds-of -thousands-of-dollars.
One thing you need to know is that once you choose a claim date, you have a very limited time to change your date. See below regarding some of these strategies.
The Social Security Administration neither has the legal obligation, nor the incentive, to assist you in determining which claim strategy will yield the highest financial return. In fact, just the opposite is true, the goal of the Social Security Administration is to preserve and grow the fund, not deplete it.
One example of a claim strategy is considering whether to “file and withdraw” or “file and suspend” your Social Security benefits. The terminology here has been used in different ways but essentially relates to the same strategies discussed below:
File And Suspend Strategy
The benefit enhancing strategy of “file and suspend” was a little known rule that was added to Social Security in 2000 as part of the Senior Citizens Freedom to Work Act. The goal was to help couples plan for their retirements
The “file and suspend” is a strategy that can substantially increase benefits for qualifying couples through the use of a combination of spousal benefits and what Social Security calls delayed retirement credits. To qualify, at least one member of the couple must have reached full retirement age, currently 66 for people born between 1943 and 1954.
File And Withdraw Strategy (The Do-Over)
The “file and withdraw” strategy, sometimes referred to as the “Do-Over or Do-Again” option arose from the difficulty workers were having in selecting the best start date to begin receiving their benefits.
Many retirees choose to begin receiving their benefits as soon as they are eligible. Unfortunately, it does not take long until these retirees realize they might have been much better off waiting a few more years. However, a little known provision in the Social Security rules allows retirees to claim a “do-over” when it comes to their original choice on the start date. But there are specific requirements to qualify for this claim strategy.
Specifically, to qualify for a “do-over” you will need to first file to suspend your benefits, pay back the total Social Security amount collected (without interest or penalties), claim a tax credit or deduction for any income taxes paid, and then re-file for the larger benefit amount that you would be entitled to at that later age.
This rule allowing a “do-over” became effective in December 8, 2010. However, you are allowed one “re-do” per lifetime, and that “re-do” must occur within 12 months of the first month of entitlement.