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Social Security Early Retirement
Many baby boomers are facing the trade-off of claiming Social Security benefits early and receiving a lower benefit, or waiting until full retirement age or later and receiving a significantly higher benefit. A recent article in USA Today highlights this trade-off, and discusses a little-known option that allows retirees to have the best of both worlds.
Those who claim their Social Security benefits at age 62 can retire at an earlier age, but they will receive a reduced benefit that may be insufficient later in life. Waiting until full retirement age (age 66 for baby boomers who turn 62 this year) will result in increased monthly payments, but many boomers will therefore have to work longer. This can be a problem for workers who dislike their jobs or want to spend more time with their families.
Most retirees dont realize that if they claim early retirement benefits, they can later change their minds. Mary Jane Yarrington, senior policy analyst for the National Committee to Preserve Social Security and Medicare, states that those who receive early retirement Social Security benefits can withdraw their applications, repay the benefits they have received, and file for benefits again at a later date. This strategy will work if the retiree has saved enough money to repay the benefits, and the retiree will not have to pay interest on the benefits received. Retirees electing this strategy could fare better than if they continued to receive the reduced benefits.
In one example, a 70-year old retiree claimed early retirement benefits and receives $11,556 per year. If this retiree had waited to file at age 70, then she would have received $20,000 per year. If she wanted to withdraw her application and reapplied for benefits at age 70, then she would have to repay $79,305 (interest-free), but she would raise her standard of living by 14%. In this example, this strategy would provide the retiree the equivalent of an inflation-indexed annuity. This strategy is well-suited for people who took early retirement, are unhappy with that decision, and want to increase their benefits.
The strategy is not without risks. There is a chance that the govern-
ment could change the rules and eliminate the option to reapply. Claim-
ing early retirement benefits could also put the spouse at risk. If the higher-earning spouse takes early retirement benefits and dies before withdrawing and reapplying, then the surviving spouse would receive reduced survivors benefits for the rest of his or her life. If the higher earning retiree dies soon after repaying the benefits, then he or she would not recoup their investment; however, the surviving spouse would receive the higher survivors benefit.
Retirees interested in repaying and reapplying for benefits, can visit their local Social Security Administration office, or phone 800-772-1213 and make an appointment. They will need to fill out Form 521, available at the Social Security Administrations website, www.ssa.gov. If the retirees spouse is receiving benefits based on the retirees earnings record, then the retiree must obtain the spouses consent before the application can be approved.
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