By Russell Gloor,
AMAC and AMAC Foundation
As the first quarter of 2023 comes to a close, the AFRO would like to give special attention to issues related to senior citizens and social security. In this week’s edition, we have included two pertinent questions about the planning and usage of social security benefits.
Ask Rusty: will social security be there for me?
Dear Rusty: I am 56 and hope to hold out to get maximum Social Security at age 70. However, with all of the talk of Social Security funds being depleted, is it wise to continue with this mindset? Will there even BE Social Security benefits for folks in my age bracket? Should I think about starting Social Security benefits as soon as I am eligible? I am employed; however, I don’t have a large amount of savings. I contribute to my company’s 401(k) and receive the match, and I own my own home (almost paid off) with an estimated $250,000.00 in equity, but I won’t be able to stay in the home long term. Any insight you can provide would be greatly appreciated.
–Signed: Weary Worker
Dear Weary Worker: I don’t suggest changing your strategy due to fears of Social Security not being there – it will be. Although the program is facing some future financial issues, the very worst that could happen is that everyone’s benefits might be cut by 20 percent or more if Congress fails to act to restore the program to solvency before the Trust Funds are depleted in the early to mid-2030s.
In my opinion, Congress will not likely fail to act because to do so would be political suicide. The fact is, they already know how to fix Social Security’s financial issues; they just lack the bipartisan spirit and political fortitude to do so until they extract every possible ounce of political capital from the issue. So, it’s largely a matter of how long Congress will wait to reform the program.
Right now, the Social Security Trust Funds hold about $2.8 trillion in reserves to ensure full benefits will be paid. But Social Security now pays out more in benefits than it receives in revenue, so the extra money needed to pay full benefits is taken from those reserves. What is needed is reform which addresses the reality that people today are living much longer and collecting benefits for much longer than the program is structured to accommodate. Many possible solutions are on the table in Congress, including raising the full retirement age a bit to deal with the reality of people living much longer, and increasing the program’s tax revenue by withholding a bit more from American workers. The eventual reform will likely include some variation of both, as well as other “tweaks” which further guarantee the program will be there for future generations.
As for the thought of claiming your benefits as soon as you are eligible (age 62), be aware that Social Security has an “earnings test” which applies to anyone who collects benefits before reaching full retirement age (FRA). If you are working full time when you first become age-eligible, you likely wouldn’t be able to collect benefits because your benefit amount would be insufficient to pay the penalty for exceeding the earnings limit ($1 for every $2 over the limit) within one year. And, as you may already know, your age 62 benefit would be cut by about 30 percent from your FRA amount, while your benefit at age 70 would be about 76 percent more than your age 62 benefit.
So even if the worst case scenario happens (which it almost certainly won’t), an across the board cut of 20 percent or more to your benefits at age 70 would yield a higher monthly payment than that same cut to your age 62 benefit amount. So, I suggest you stick with your current strategy to continue working and wait as long as practical to claim your benefits (up to age 70).
As an aside, AMAC (Association of Mature American Citizens) has, for years, been proposing (to Congress) its “Social Security Guarantee Plus” which would restore Social Security to solvency for generations to come and would not require an increased payroll tax rate. Congressional reaction has been generally positive, leading us to be hopeful for a reasonable solution to the problem.
Ask Rusty: how do I withdraw my application for social security?
Dear Rusty: I will be 67 next month and reached my full retirement age in July 2022. My wife and I are discussing whether we should take Social Security now or wait until we are age 70 to get a higher benefit. I remember reading that you can start Social Security and, if not needed, pay it back within a year and then “reset” to get a higher benefit by waiting longer. Please describe the steps of this process to take now and repay the year’s benefits if we do not need them.
-Signed: Uncertain
Dear Uncertain: Well, to exercise the so-called “do over option” (which is essentially withdrawing your application for benefits), you need to contact Social Security (1.800.772.1213 or your local SS field office) and request that your application for benefits be withdrawn. You can also download and complete form SSA-521 and deliver the same to your local Social Security office. You can get that form at this link: www.ssa.gov/forms/ssa-521.pdf.
This “do-over option” is only available within 12 months of the date you submit your application and can only be done once in your lifetime. If you use it, you will be required to repay Social Security for all payments made on your behalf, including not only your monthly payments but also any income taxes you had withheld, and any Medicare premiums which were withheld from your monthly payments (Social Security will inform you how much you must repay). Once the repayment is made, it will be as though you never applied for benefits, meaning your benefit amount will be higher when you later re-apply (which would also be the case if you simply didn’t apply – your benefit entitlement continues to grow until you claim, up to age 70 when your maximum SS benefit is attained).This process would be the same for both you and your wife.
However, I suggest you consider whether you really need to withdraw your application. Be aware that since you’ve already reached your full retirement age (FRA) you can claim now and, if you later decide you don’t need the monthly SS money, you can simply temporarily suspend your benefit payments to avoid repaying Social Security everything they’ve already paid to you and on your behalf (you don’t need to formally withdraw your application).
By simply suspending (and not withdrawing), your benefit amount will start growing again with each month your benefits are suspended (about .67 percent more for each month you do not get benefits) and you can keep everything you’ve already received to the point you suspend your payments. To suspend your payments just call Social Security at the number provided above and tell them you wish to suspend your benefits and grow your payment amount. While you can only use the withdrawal process once in your lifetime, you can temporarily suspend your benefit payments multiple times if necessary.
Russell Gloor is the national Social Security advisor at the AMAC Foundation, the non-profit arm of the Association of Mature American Citizens.
This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA).
NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, email ssadvisor@amacfoundation.org.
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