An Update To the Social Security Do Over

Today, the Social Security Administration published a revision to their “withdrawal policy”, which we talked about in detail in the article “The Ultimate Do Over”.  It’s important for you to know what has changed about this rule, especially if you have been counting on this in your planning for Social Security benefits.  You can see the actual text of the SSA’s announcement 20 CFR Part 404 by clicking here.

What’s Changing?

Essentially SSA has decided that this rule, as it stood, represented a little too good of a deal, even though very few people ever took advantage of it.  The rule, in brief, allowed an individual to begin taking retirement benefits at any age, and then at any point in the future the individual could pay back all of the benefits (without interest) and re-set his or her beginning date for receiving benefits.  This strategy allowed the individual to receive benefits and invest them, then pay back the entire amount (but keep any interest earned or growth) and then receive a higher benefit due to the credits for delaying retirement.

Under the new rules, you can still use this strategy, but you can only wait for 12 months before you pay back your received benefits.  This doesn’t mean that you have to re-set your benefit and continue receiving benefits at the 12 month or less stage – you could pay back your benefit and withdraw from receiving benefits until much later if you wish.

So, the key here is that you couldn’t, for example, begin receiving benefits at age 62, then at age 70 pay it all back and re-set.  You’re limited to only 12 months of received benefits before you pay it back.  In the example, you could receive benefits at age 62 until you’ve received 12 months’ worth, then stop receiving benefits and pay back what you received – then delay reinstating your benefit until FRA or age 70 or whenever you like.  Or, at age 63 you could pay it back and re-set to a benefit for your new attained age.

Another thing that has changed is that you can only do this payback (known by the SSA as a “withdrawal of application”) one time in your life.  Previously, there was no limit as to how many times you could do this.

File and Suspend Changing – but not a big change

The last significant change that came about today is regarding the File and Suspend tactic.  Don’t worry, this one is still available – what changed is that you can no longer enact a “payback” of received benefits (like with the “do-over”).  File and Suspend is only allowed when this is your first application for benefits, meaning that you have not received any benefits in the past (although you could suspend after FRA and voluntarily forego accrued benefits).

Of course, the greatest benefit of the File and Suspend tactic is the ability to establish a “beginning date” on your record, so that then your spouse and dependents can begin receiving benefits based upon your record.  This remains unchanged.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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4 Comments

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  • Hello, Dan –

    “Entitlement” is when you begin receiving benefits, regardless of your age. So the limit for withdrawal of your application is 12 months after you begin receiving benefits, which in your case was about 6 months ago, from what you’ve said.

    Suspending benefits is available at Full Retirement Age. If you believe you’ll go over the Annual Earnings Test (AET) limit this year before you reach FRA, you can contact the SSA and they will suspend the checks earlier in the year so that you don’t have to pay back amounts you’ve received above the limit ($1 for every $3 over the limit).

    Once you hit FRA you can suspend and pick back up again later on (at age 70 as you suggested).

    Hope this helps –

    jb

  • Lee,

    I took early retirement at 64 about 1.5 years ago. I just found a good job. Please correct me but I thought that I have until 12 months after full retirement(However, if you change your mind 12 months or more after you became entitled(for me 66) to retirement benefits, you cannot withdraw your application.)”http://www.ssa.gov/retire2/withdrawal.htm” , which for me is 1.5 years from now to elect to withdraw my application, repay all monies, and then reset my retirement date to when I retire at 70 years old. If this is true, then how long do I have to pay back the monies once I file the SSA 521?? If I am too late, then can I suspend my retirement now, start it again in 4.5 years at 70? If I did that my earnings during that time would increase my monthly amount, would they not? Would there be any addition to my monthly payment from declining to get payments for the previous 4.5 years?

    Thank you for providing me this opportunity to ask a professional.

  • Lee –

    I would talk this over with your local SSA office. Since you were in the process of completing the payback, you may still be able to continue. I just don’t know how they’ll deal with this – sorry.

    Do all of us a favor and let us know how it turned out, if you don’t mind…

    jb

  • I submitted a request to repay all benefits in October 2010 and was in the process of paying entire amount back. My decision to payback was made due to necessity return to work in 2008 due to economic situation after collecting only 6 months of benefits (after turning 62 in May 2007). All benefits have been paid back for 2008, 2009, 2010 and payments suspended due to earnings limit. I was in process of paying back the first 6 months payments. Should I? or am I now prevented from continuing to withdraw my claim?

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