Posted on 30 August 2010
By Mark Miller
Social Security’s do-over option may be sharply curtailed under new regulations proposed by the federal government, according to Mary Beth Franklin of Kiplinger’s.
Few people know it, but Social Security allows you to change your mind after you’ve filed for benefits. Say you file for benefits at age 66, but decide a few years later that you should have waited until age 70 in order to receive the higher monthly payments that accrue with age. Social Security’s repayment rule allows you to withdraw your benefits claim, repay all the benefits you’ve been paid and refile for the benefits you receive at the higher age.
That includes higher monthly payments, and larger increases in your annual cost-of-living bumps (on a dollar basis).
Very few people actually do this, probably because of the large sums of money involved in the payback. But it really amounts to an interest-free loan from the government, and the paybacks don’t come with a penalty.
Franklin reports that the Social Security Administration now is considering curtailing this option sharply:
Under the proposed rule, retirees would be allowed to withdraw their application for Social Security benefits only once during their lifetime and only within 12 months of when they began receiving benefits. If they changed their mind within the first year, they could stop their benefits, pay back what they had received and restart them later at a higher level based on their age at that time. But once that 12-month deadline passed, they would no longer be able to repay benefits to “buy” a higher benefit later. The federal government’s Office of Management and Budget has the final say.