Claiming Social Security right when you turn 62 may sound attractive initially, since you get an extra source of income that can help with expenses. But this same decision will significantly limit how much your Social Security benefits grow in the future.
Some people realize they took out Social Security too early shortly after doing the math and seeing how much of their benefits are withheld. Luckily, recent recipients can still hit the “do-over” button.
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What it means to claim 'too early'
You can claim Social Security benefits before reaching full retirement age, which is 67 for people born in 1960 or later. While this can be the right move for someone with health issues who can’t work, or someone who has 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, since you are locking in a lower benefit. It can also make less sense for full-time workers to tap into 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 full retirement age. You get the highest possible Social Security benefit if you wait to take it out until you turn 70.
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The one-year withdrawal rule
If you recently took out Social Security, you might be eligible for a do-over. The Social Security Administration lets some beneficiaries cancel their application within 12 months of getting approved. If your cancellation request is approved, you will stop receiving Social Security and can apply again in the future. This reset lets Social Security compound, so you can secure 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 rule at 63, you cannot use it again if you decide to take out Social Security at 67 and wish that you had waited until 70. Be sure to stay in touch with Social Security and monitor your application’s progress, since it’s not something that happens automatically.
You may have to pay everything back
The reset button is convenient for people who regret taking it out and wish there was an alternative. However, you must repay any of the Social Security payments you have already received.
Social Security will not accept your request if you only provide a partial payment. Repayments can also include benefits paid to family members on their record, plus money withheld for Medicare premiums, taxes, and garnishments. You may have to pay Medicare Part A expenses if you used it to cover medical expenses during that time.
It’s important to check your finances before using the one-year withdrawal rule. Some people will severely limit their liquidity for multiple years if they try to pay everything back. It can be worth it in the long run for some, but if you are forced to take out loans, the debt and accumulating interest can worsen your financial situation.
If you aren’t sure about the long-term financial impact, it may be worth getting in touch with a financial advisor to assess whether it’s the right move for you.
