3 financial do-overs with Social Security

  • The reset
  • The file-and-suspend
  • The restricted application

Life doesn't allow many "do-overs," especially when it comes to financial planning. Most of us simply save and invest as best we can, and hope that in retirement we run out of time before we run out of money.

Until recently, financial planners tended to treat Social Security benefits as the arthritic component of a retirement plan, a predictable, if feeble, income stream with limited range of motion.

But between ages 62 and 70, you can bust three surprising Social Security dance moves -- the reset, the file-and-suspend and the restricted application -- that can significantly expand your planning options and supersize your benefits.

1. The Reset 

The reset or "do-over" feature gives some flexibility to taxpayers who may have lived to regret taking a reduced benefit at age 62 instead of their full benefit at age 65 or 66, or the bonus amount by delaying retirement to age 70.

It allows you to reset your benefit amount by essentially coming out of retirement by filing Social Security Form 521, or a "Request for Withdrawal of Application", repaying all Social Security benefits received to date with no interest or adjustment for inflation, then reapplying at your current age. You can only do it once and it is irreversible.

Once the Social Security Administration approves your request, which is almost automatic, you collect at the stepped-up amount for as long as you can fog a mirror. One added plus: Your spouse may thereafter collect spousal or survivor benefits based on your stepped-up benefit rather than your meager early-retirement amount.

2. The File-and-Suspend 

File-and-suspend allows married taxpayers who retire at different ages to collect optimal benefits. Here's how it works:

Let's say Jack has reached his full retirement age of 66 but plans to work to 70 in order to collect his delayed retirement credits, which can increase his full benefit amount by 32 percent. Let's also say Jill, his nonworking spouse, just turned 62. He can file for Social Security benefits but request an immediate suspension of his benefits. He won't receive any checks and will continue to accrue delayed retirement credits.

His wife, however, can now apply for benefits on his record and begin receiving checks at a higher amount than she would have received on her own employment record.

With a little planning and saving, Jack may later decide to reset at age 70, which would increase not only his own lifetime benefit but Jill's spousal and survivor benefit.


3. The Restricted Application 

Let's juggle our Jack-and-Jill equation a bit. Jack is still 66 and wants to work until he’s 70. Now let's say Jill is also 66 and looking to retire, but her career has earned her a full benefit on her own record. So, she won't be drawing on Jack's record. In this case, Jack would not file for Social Security, but would instead do what is called "restricting an application" to Jill's benefits only.

What's that do? It allows Jack to file as spouse on Jill's record and earn half of her full benefit while still racking up delayed retirement credits of his own. That means if Jill earns $1,000 a month, Jack will receive $500 a month on her record while he continues working, increasing their family benefit amount by 50 percent.

When Jack retires at 70, his delayed credits will bring a higher benefit amount, which would mean a higher survivor benefit for Jill should she outlive Jack.

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