Undoing a decision to claim benefits

Nov 18, 2012 @ 12:01 am

I received an interesting question from a reader who had started collecting reduced Social Security benefits at 62 and had banked all the benefits.

She wonders if she can repay the money and apply for higher benefits at her current age of 65.

No, she can't repay her benefits.

The rules changed in December 2010. Your clients now have only a 12-month window to repay Social Security benefits after first claiming them. When benefits restart later, they will be based on the client's age at that time, resulting in a higher benefit.

SUSPENDING PAYMENTS

But there is another option for those who change their mind about the best age to claim Social Security benefits after the 12-month window has closed. Once clients reach the normal retirement age of 66, they can suspend their benefits, which will rise by 8% a year between 66 and 70.

If clients wait until they're 70 to resume claiming, the resulting monthly benefit will be 99% of what they would have received if they had waited until 66 to collect in the first place.

Here is how the math works.

Assume that a client is entitled to collect $2,000 per month at 66 but decides to collect benefits early, at 62, knowing that those benefits will be reduced by 25%. The client collects $1,500 per month and is satisfied.

As time goes on, however, the client regrets not waiting for the bigger payout. At 66, he or she can suspend Social Security benefits.

Using the $1,500 monthly amount as the base and benefit growth of 8% annually, benefits will be worth 32% more when the client is 70.

That is $1,980 ($1,500 x 1.32), which happens to be 99% of the original full benefit amount.

Using this strategy can be a great way to undo an ill-advised decision to claim early.

mbfranklin@investmentnews.com Twitter: @mbfretirepro

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

State Street's Brie Williams: The story behind the 'Fearless Girl' statue

The idea started with the creation of a statue to coincide with International Women's Day, and the results surpassed expectations, according to Brie Williams, head of practice management at State Street Global Advisors.

Video Spotlight

Will It Last As Long As Your Clients Do?

Sponsored by Prudential

Video Spotlight

The Catalyst

Sponsored by Pershing

Latest news & opinion

Labor's Alexander Acosta and SEC's Jay Clayton tell lawmakers they will work together on fiduciary rule

In separate appearances before Senate panels, the regulators stressed the cooperation that Republican legislators and opponents of the DOL fiduciary rule are demanding.

Brian Block denies cooking the books at Schorsch REIT

Former CFO claims everything he did was 'appropriate' and 'correct.'

Interns will take on several roles at advisory firms this summer

College students are helping with client prep, firm visioning and long-term projects, among other duties.

10 funds with largest 3-year outflows

Even well-managed funds that have beaten the S&P 500’s 10.1% average annual gain have watched investors flee.

Wirehouse training programs are back

At one time, major brokerage houses ran large, expensive training programs for thousands of young brokers, and now it looks as if they are about to return to that model.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print