Retirees can often regret taking their social security benefits too early. By waiting until one's full retirement age of 66, the full benefit can be received but if those benefits are claimed four years early, for example, only 75% of those benefits will be received.
Mary Beth Franklin, Contributing Editor of Investment News, often hears from people they wished they had waited. "If you are within the first 12 months of claiming social security benefits, you can change your mind and actually withdraw your application for benefits," filing under form 521, she says. However, there's a catch. When that application for benefits is withdrawn, you have to repay all of the benefits you've received, including anyone else who has received benefits, such as a spouse or minor child, notes Franklin. The upside of this is that it erases your benefits and you start on a clean slate at an older age with a higher amount. "This is a valuable strategy if you grab social security early and you wish you hadn't," she says.
One of the proposed changes to social security included in the 2015 budget might affect the file and suspend strategy, which is a very valuable claiming strategy for those that wait until the full retirement age of 66. It allows you to say to social security that now that you've reached your full retirement age, you're filing to trigger your benefits so that your spouse can collect the spousal benefit but you want your own benefit to keep growing. For every year benefits are postponed between your full retirement age and age 70, you earn an 8% per year increase.
In Obama's 2015 proposed budget, he wants to look at some of these "aggressive claiming strategies" that higher income retirees are taking advantage of, without any further elaboration given. Franklin has checked with the Social Security Administration that any change to claiming strategies, like file and suspend, would require an act of Congress. This budget is merely a political document "wish list," without the effect of law, Franklin notes. She doubts Congress would agree on something as controversial as this but that perhaps one day, in the not so distant future, this claiming strategy may go away.
"For right now, it's law and nothing's going to happen in the immediate future and when they do change, they seldom happen retroactively and you'll have plenty of notice," Franklin says.
Mary Beth Franklin is a Contributing Editor of Investment News. She spoke with Retirement News Today during this interview. Retirement News Today provides online retirement news video content and is a featured network of Sequence Media Group.