Two ways to reverse a Social Security claiming decision

At the height of the Covid pandemic, millions of Americans hunkered down in their homes, and some decided to retire early as part of the so-called Great Resignation. But now that rampant inflation is threatening many of those impromptu retirement plans, some readers are asking if it is possible to reverse a Social Security claiming decision.

The short answer is yes. There are two options to undo a Social Security claiming decision as a way to build bigger benefits in the future. But like most things related to this complex program, there are specific rules and deadlines, as well as potential unintended consequences.

You can change your mind within the first 12 months of claiming Social Security benefits and cancel your application. This process is called a withdrawal and you are limited to one withdrawal per lifetime. You can reapply for Social Security benefits later.

But there is a catch. When you withdraw your application for Social Security, you must repay all the benefits you have received, as well as those of anyone who has received benefits on your record, such as a spouse or child. Repayment includes Social Security benefits plus any money withheld from those benefits to pay for Medicare premiums or voluntary federal income tax withholding.

Repaying your benefits wipes the slate clean as if you had never applied for Social Security, so when you claim Social Security in the future, your benefit will be based on your new age at time of claim. That will result in a larger monthly benefit, plus any cost-of-living adjustments that were awarded since you became eligible for Social Security at 62.

Although Social Security retirement benefits are available as early as age 62, they are reduced by 25% to 30% compared to your full retirement age amount. There's an added bonus of 8% per year for every year you postpone claiming Social Security beyond full retirement age up to age 70. The difference between claiming benefits as early as possible at age 62 and the maximum age of 70 is a whopping 76% increase in monthly Social Security benefits for life.

If you already have Medicare and you decide to withdraw your application for Social Security, you must clearly state on form SSA-521 whether you want to keep your Medicare benefits. (There's a box to check yes or no.) If you keep your Medicare coverage, you will pay your premiums directly to the Centers for Medicare and Medicaid Services.

Unfortunately, that can be tricky. One reader from Honolulu said she withdrew her application for Social Security benefits and later learned that her Medicare Parts A and B had been cancelled unintentionally. She's still trying to straighten out the mess with her local Social Security office.

If you miss that 12-month widow to withdraw your application, or if you prefer not to repay your benefits, you have another option to reverse a Social Security claiming decision.

You can suspend your benefits if you've reached full retirement age, but aren't yet age 70. By suspending your benefits, you'll earn delayed retirement credits for each month your benefits are suspended. Your benefits will automatically start again the month you reach 70 — unless you request benefits to be reinstated before then.

If you voluntarily suspend your retirement benefit and there are other people who receive benefits on your record, they won't be able to receive benefits for the period that your benefits are suspended with one exception: A divorced spouse will be able to continue receiving benefit.

If you're enrolled in Medicare, CMS will bill you for future Part B premiums. Warning: If you don't pay the premiums on time, you may lose your Part B Medicare coverage.

A recent survey from Nationwide Retirement Institute found that market volatility and high inflation are leading two-thirds of Americans to worry more about their retirement income, a 10% spike from last year. Despite the worries about inflation, the survey also found that more than two-thirds of Americans don’t realize that Social Security is protected against inflation. In 2022, Social Security benefits increased by 5.9% and next year’s cost-of-living increase could be substantially higher.

“In this uncertain economic environment, it is more important than ever for people nearing retirement to understand that their Social Security benefits are protected against conditions such as inflation,” Tina Ambrozy, senior vice president of Strategic Customer Solutions, said in a statement accompanying the Nationwide survey of more than 1,800 adults conducted this spring.

“There is an immediate opportunity for financial professionals to clear up clients’ misconception about Social Security to alleviate their fears and help them stay on track toward their long-term retirement goals,” Ambrozy said.

(Questions about new Social Security rules? Find the answers in Mary Beth Franklin’s new 2022 ebook at Maximizing Social Security Benefits)