What Can One Do If Social Security Benefits Were Claimed Too Early?

By Jeff Young

When I give presentations on Social Security Claiming Strategies, it is a common occurrence to be asked by someone in the audience, what options are available to them if they claimed social security “too early.” What they probably mean to say is that they realize their financial interests may have been better served had they waited and used a claiming strategy that would have increased their benefits.

There are a few things that people may be able to do to mitigate the damage of early claiming.

First, if one is within the first year of taking their Social Security benefits, they can be given back. Stopping benefits and also returning benefits received within the first year enables one to restart the clock at a time of their choosing. (Several years back, one could give it all back at any time. That option was taken away.)

Another alternative is to return to the workforce. When one takes Social Security prior to Full Retirement Age (FRA) there is an earnings test. For 2014, Social Security benefits are reduced $1 for every $2 earned over $15, 480. (These are personal gross wages and not pension earnings or your spouse’s income.)   So for the person who would have $10,000 in reduced Social Security benefits for applying early, they would virtually give all of it back with an income over $35,500. ($35,500 – $15,480 = $20,020 X 50% = $10,005.)   These benefits are not lost, but rather added back when the person leaves the workforce or falls below that limit. (Keep in mind that the earnings test is different in the year one reaches FRA.)

Another option one has is to continue taking their Social Security payments until they reach their FRA and at that time stop their benefits. They will then start to earn Delayed Retirement Credits (DRC’s) on that reduced amount. The net result will be that at age 70, their benefit will be approximately what it would have been had they waited until age 66 to begin. As an example, a woman entitled to $2000 at her FRA of 66 will earn $1500 if she takes Social Security at age 62.   If she stops at age 66, she will earn 8% per year until age 70 (plus cost of living adjustments), bringing her to about where she would have been had she not applied early. ($1500 X 132% = $1980 = 99% of $2000)

Each of these situations requires a unique sacrifice in its own right, so be sure you understand the ramifications of each course of action prior to making a decision.

Jeff Young is Senior Vice President of First Financial Equity Corp. in Scottsdale. He teaches Social Security Strategies at the Arizona School of Real Estate & Business on the first Friday of each month. He can be reached at jcyoung@ffec.com.