Social Security do-over: what are your options?

One of the biggest misconceptions when it comes to Social Security is that if you choose to claim early, then you’re stuck with that decision. Certain situations, however, allow a change of heart, even after you’ve started receiving the benefits.

In this article, InvestmentNews will discuss the circumstances where you get a chance at a Social Security do-over. We will explain the rules and how reversing your decision can impact your retirement income. We also talked to a Social Security expert who shared her views on why people change their minds.

If you regret the timing of your retirement claiming decision, then you’ve come to the right place. Read on and find out how a do-over of your Social Security benefits can work for you in this guide. 

How does a Social Security do-over work?

When it comes to claiming Social Security, the timing of your decision determines how much your monthly payments will be. Claim early and you can see your retirement checks reduced permanently. Wait past full retirement age (FRA) and you can reap the benefits of delayed credits.

If you file for retirement and regret it later, you may get a chance to undo your decision. This, in a nutshell, is how a Social Security do-over works.

According to Martha Shedden, president and co-founder of the National Association of Registered Social Security Analysts (NARSSA), retirees have two do-over opportunities once they start collecting benefits.

1. Withdrawal of Social Security benefits

The Social Security Administration (SSA) imposes two conditions that can make you eligible to withdraw your retirement benefits:

• You have been receiving benefits for not more than 12 months.
• You have never filed for a withdrawal of benefits.

“[This] option is available within the first 12 months after an individual's application for benefits has been approved,” Shedden said. “Canceling or withdrawing the application during this time is known as ‘withdrawing an application’ and can only be done once.”

If you meet these conditions, you can withdraw your benefits as if you had never claimed them. You can then file for Social Security later when the monthly payments are larger. But this strategy comes with a caveat. You must pay back all the benefits you received, including those of your spouse or any family member collecting benefits on your earnings record.

This Social Security do-over option becomes more complicated if you’re already enrolled in Medicare. Because the premiums can no longer be deducted from your retirement benefits, you must pay them out of pocket. More details on this later.

How much Social Security benefits do you need to repay?

What makes withdrawal of application an unappealing option for many is the amount to be paid back. Apart from your own benefits, you will need to repay those of your spouse and other dependents. You’re also required to pay back money withheld from your account, including Medicare premiums and taxes. All these must be paid in one lump sum.

Read more: Should you take Social Security retroactive lump sum payments?

Let’s say you have been receiving $2,000 per month in retirement benefits in the past 10 months. During this period, your spouse has also been receiving spousal benefits, which is half of your benefit amount. If you decide to get a Social Security do-over, you will need to shell out at least $30,000 to give back to the SSA.

Learn more about how Social Security works in this guide.

2. Suspension of Social Security benefit

If repaying retirement benefits isn’t financially viable, you can choose to suspend your monthly payouts. This option doesn’t require you to repay anything, but you must meet these criteria:

• You claimed the benefits before reaching FRA.
• You have reached FRA but not age 70.

“Voluntary suspension is used if an individual claimed early but now has the financial ability to do without their Social Security for up to three years,” Shedden said. “By suspending benefits, the individual’s benefit amount is then eligible for monthly delayed retirement credits up to the age of 70.”

Per SSA’s rules, your benefit increases by 0.66% for each month you postpone claiming past your full retirement age. Calculated annually, the rate is 8%. Depending on the year you were born, you can earn credits equivalent to 124% to 132% of your benefits if you wait until 70. This is on top of any cost-of-living adjustment (COLA) increase.

If you choose this Social Security do-over option, your benefits will stop the month after you make the request. Any benefits based on your earnings record, however, will also be suspended, including those of your spouse and other dependents. Divorced spouses aren’t covered by this rule.

You can restart your benefits anytime, with the corresponding increase in payouts. If you don’t and you turn 70, your monthly payments will resume automatically with your earned credits.

Here’s a summary of how these two do-over options compare.

Find out how early retirement affects your Social Security benefits in this guide.

When does it make sense to get a Social Security do-over?

There are several reasons that might prompt you to rethink your decision to claim Social Security benefits. These include:

• You retired during an economic downturn but now that the economy has recovered, you want to rejoin the workforce.
• You accepted early retirement incentives from your employer, but you realized that you would want to continue working, even if it’s for a different company.
• You received a huge financial windfall and realized that you don’t need your retirement benefits to live comfortably at the moment.
• You realized that you could manage your daily expenses without your Social Security benefits and would rather have a larger payout later on.

Shedden added that the biggest consideration when withdrawing an application would be anticipated changes in one’s income. These situations include:

• If a person younger than FRA starts collecting benefits and then goes back to work, this can affect their benefit amount due to the Social Security earnings test.
• If a person will be collecting a “non-covered pension” that they had not considered.
• If a person learns that there’s a better claiming strategy considering Social Security rules on spousal, survivor, and pensions benefits that can increase their benefit amount.

For voluntary suspension, Shedden said that the biggest reason would be that “they have the financial resources or are working again and are able to stop their benefit payments for a number of months or years up to age 70 to increase the benefit amount.”

How does a Social Security do-over affect Medicare?

Withdrawing or suspending your retirement benefits doesn’t impact your eligibility for Medicare. But since the SSA takes out Medicare premiums from your monthly checks, it’s important that you know how much exactly is being withheld. Once you decide to get a Social Security do-over, you will need to pay for these premiums yourself.

If you’re withdrawing benefits because you’re rejoining the workforce, you will also want to evaluate your employer-provided healthcare coverage. Consider how comprehensive the plans are and how much premiums cost. Compare these with those from Medicare. It makes sense to pick the coverage that best suits your needs.

There are additional factors to consider if you also choose to withdraw your Medicare benefits:

• You must return all Medicare Part A benefits paid on your behalf.
• Your Medicare Part B coverage will be considered as voluntary termination. Your coverage, however, will continue for the month you requested the withdrawal and the succeeding month.
• If you refile for Social Security benefits and Medicare, you will incur higher Part B premiums due to late enrollment.

In addition, withdrawing from Medicare Part A or Part B can affect your Part C (previously called the Medicare Advantage plan) and Part D coverage (prescription medication):

• Your Medicare Advantage enrollment ends automatically.
• By withdrawing from both Medicare Part A and B, you lose your eligibility for Part D coverage and incur a penalty once you enroll again.
• By keeping either Medicare Part A or B, you retain your eligibility for Part D coverage.

Check out this guide to find out how to restart your Social Security benefits.

How do you apply for a Social Security do-over?

If you’re planning a do-over of your Social Security benefits, there are certain steps you must follow:

Withdrawal of application

• Step 1: Fill out a Social Security Form SSA-521. You will be asked to give your reason for withdrawing your application. If you’re already enrolled in Medicare, your request must state clearly whether or not you’re also withdrawing your Medicare coverage.
• Step 2: Send the completed form to your local Social Security office. Your local office will notify you of the decision and inform you of how much benefits you need to repay.

Once approved, you have 60 days to cancel your withdrawal. After this, you will lose all retirement benefits for the period covered in your application.

Voluntary suspension

According to the SSA’s website, you can make a request for voluntary suspension of your benefits by informing the agency “orally or in writing.”

Some points to consider:

• The suspension of your benefits starts in the month after you make the request.
• Social Security payments are made the month after they are due. If you ask for a suspension in August, you will still receive your payout in September.
• Your benefits restart automatically once you reach age 70.
• If you want your benefits to be reinstated before age 70, all you need to do is inform the SSA.
• Reinstatement of benefits can only be done the month after you requested voluntary suspension.

Another way to get the payouts you might have missed is by claiming retroactive Social Security benefits. Find out how this strategy works in this guide.

Is getting a Social Security do-over worth it?

The decision to withdraw or suspend Social Security benefits requires careful planning and preparation.  

“Each individual situation is very different, but a do-over should be carefully analyzed using software to understand how much it will affect their lifetime and annual/monthly benefits to make sure it is really the right choice,” Shedden said. “Either of the two do-overs allows retirees to increase their ultimate lifetime benefit amounts by either filing using a different strategy or stopping payments to take advantage of delayed retirement credits being added to benefits.

“That’s why it’s important to be informed and to understand the rules that affect you and your family, so that you are confident that the do-over is the best economic decision for you.”

Given the complexities of a Social Security do-over, it’s best to work with an experienced financial advisor who specializes in retirement planning. If you want to find one, our Best in Wealth Special Reports page is the place to go. Recently, we unveiled the five-star winners of our Top Financial Advisors in the USA awards. By partnering with these industry experts, you can be sure that your financial future is in good hands.