Initially, claiming Social Security benefits early can be an attractive solution if you want to start receiving payments sooner rather than later. You can access income before your full retirement age (FRA), which for most Americans is between the ages of 65 and 67. Many people start claiming their payments from the age of 62, which is the minimum age at which you can start.
However, this decision entails a substantial and by no means negligible reduction in the monthly amounts to be received, and a reduction of up to 30% in the size of the checks may be expected. While this reduction can be permanent and for the rest of your life, the Social Security Administration (SSA) offers two alternatives to mitigate the impact and increase long-term benefits.
Strategy 1: Withdraw the Application for Social Security Benefits within the First Year
The SSA offers a unique opportunity that many people are unaware of in case they find themselves in this dilemma. During the first 12 months, the person is allowed to withdraw the application and delete the claims history, in order to avoid losing that cut of up to 30% on the checks.
All you have to do is contact the Social Security Administration or visit your nearest SSI office and request the withdrawal of the application. Subsequently, you must also return any benefits that you or another member of your family has collected in the period tha|t has elapsed between the time you applied for benefits and the time you regretted. If you follow all the steps correctly, the government will treat your case as if you had never applied for benefits.
You can then wait until an older age and work in the meantime to continue accumulating Social Security credits and have larger checks when you definitely decide to retire.
You Can Change Your Mind After a Year: Here’s What You Have to Do
The SSA also offers the possibility to the retiree or his family to regret having claimed the benefits too soon, when the “regret” happens after one year, and the previous modality does not apply.
If you’ve been receiving Social Security checks for two or more years, even beyond the FRA, the SSA will stop sending you checks until you apply for them again, or when you turn 70, the latter being the age at which retirees qualify for the maximum Social Security benefit.
This is how the payment increase is calculated if you do the second strategy
From the moment you stop receiving Social Security benefits, having done strategy 2, after the FRA, a special mechanism is activated that increases the monthly amount to be paid gradually and steadily. They start by adding two-thirds of 1% to the profit for each month of suspension, which totals an increase of 8% annualized. For example, an individual with a full retirement age of 67 who suspends benefits until age 70 would accrue a total increase of 24% in their checks.
Let’s do an exercise for a better understanding
Let’s imagine a Social Security recipient named Gary who qualifies for a monthly benefit of $2000 upon reaching his 67-year-old FRA. However, Gary decided to claim his first checks starting at the age of 62, which reduced the payment to $1400 a month. You are losing $7,200 in the first year alone.
If Gary decides to stop benefits at age 67 and resumes them at age 70, he will notice the following in his payments:
- Period of suspension: 3 years (from 67 to 70 years).
- Cumulative increase: 24% (8% per year for 3 years).
- New monthly benefit: $1,736 ($1,400 x 1.24).
As you can see, $1,736 is 28% higher than the original $1,400 that Gary would have claimed for starting receiving payments from the age of 62.
