Social Security's Hidden Rule Too Many Retirees Don't Know
Key Points
Social Security is loaded with rules, and not all are well-known.
The program's do-over option could spare you from getting stuck with reduced benefits for life.
The rule has a time limit, so it's a good thing to keep on your radar.
- The $23,760 Social Security bonus most retirees completely overlook ›
If you're thinking a program as crucial as Social Security has many rules, you'd be right. And if you're not up to the challenge of memorizing every single one, that's also understandable.
There are a few basic Social Security rules everyone should know. The earliest age to claim benefits is 62, and benefits are payable in full at full retirement age, which is 67 for anyone born in 1960 or later. A delayed claim past full retirement age, meanwhile, results in an 8% boost for every year you wait until you turn 70.
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Social Security's do-over rule isn't as well-known as the rules just mentioned. But it's still an important thing to keep on your radar.
How Social Security's do-over rule works
Although you can claim Social Security as early as age 62, failing to wait for full retirement age results in reduced benefits for life -- that is, unless you manage to undo your claim.
Enter the do-over rule. In a nutshell, it lets you pretend your Social Security claim didn't happen, so you can find it again later and lock in larger benefits.
To exercise the do-over option, you have to do two things. First, you must withdraw your application for benefits. Secondly, you have to repay all of the money in benefits you received to date.
The problem is that there's a ticking clock to exercise the do-over. You must both withdraw your benefits application and repay the Social Security Administration the money it paid you within 12 months.
That's where not knowing about the do-over option could come back to bite you. If you learn about it too late, you may not have enough time to scrounge up the money needed to repay your benefits by the deadline, leaving you stuck with reduced monthly checks.
Read up on Social Security well ahead of retirement
Social Security's do-over rule is only one of many that may not get much press. But it's important to be aware of these nuances in case you ever need to use them to your advantage. For this reason, you should make reading up on Social Security a priority ahead of retirement.
Is it the most fun way to spend a weekend? No. Could it make a huge difference in your future finances? Absolutely.
Exercising your do-over, for example, could make the difference between getting smaller checks for life and larger ones, which has a direct impact on your financial well-being. So even though it may not be the most compelling activity, understanding Social Security's rules should be a priority for you.
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