This week, in our continuing Social Security series, we are discussing the “do-over” available to qualified Social Security participants. Many people have heard or read that Congress took away this interesting and helpful tool, but they are not completely correct. The “do-over” is now very limited, but it is not gone.
The original “do-over” referred to the ability of a participant who was collecting benefits to repay all benefits previously received (or since any prior “do-over” repayment), and to restart increased benefit payments, either immediately or in the future. In some circumstances, this could become very beneficial, due to the automatic increase in monthly benefits that occurs when filing is delayed or repaid.
Waiting to collect Social Security benefits past Early Retirement Age (62) is financially rewarding, as the System increases your monthly benefit for every month you delay filing. The annualized increase is about 8%, which constitutes an excellent guaranteed annual benefit increase. The (now defunct) unlimited “do-over” provision took advantage of this by increasing the benefit as if no benefits had been collected.
It sounds too good to be true, and perhaps it was. For years, Congress has been faced with the reality that Social Security is running out of money. Without exploring the reasons (we have covered that problem in earlier blogs), Social Security funding needs to be fixed in order to prevent recipients from suffering broken promises.
Let’s go back to the “do-over.” We mentioned that it was not entirely eliminated, Instead, every recipient has exactly one “do-over,” and it has a lifespan of exactly one year. Any time within one year of original benefits filing, a Social Security recipient can repay all benefits received, and re-file at any future time. The benefit level will increase by the same formula for delayed filing, as if no benefits had ever been paid.
One interesting feature of the “do-over” is that Social Security requires repayment of every benefit received, but does not require any interest or penalty payments. Knowing that one “do-over” is still available allows new and future Social Security recipients to have a change of mind as to working, relationships, or other life changes. In life, we don’t always get a second chance. In Social Security, we have retained one.
In the next few weeks, we will be covering more and more details about Social Security. Our efforts are aimed at teaching people about options existing within the System, and how to plan for their own personal best ways to collect.
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