The Almost Irrevocable Retirement Income Planning Decision

The Almost Irrevocable Retirement Income Planning Decision

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I don’t know about you, however, I appreciate and enjoy flexibility in my life. When I hear the word “irrevocable,” other than in the phrase “irrevocable life insurance trust,” which I know from many years of experience is a wonderful estate planning tool in the right situation, I get a little squeamish. As Duke Frederick says to Celia in Scene 3 of Act 1 of Shakespeare’s As You Like It, “Firm and irrevocable is my doom.”

As pointed out in the December 17, 2012 post, Approaching 62? – Stop Before You Leap – Part 2 of 2, with two exceptions, the choice of your Social Security start date is an irrevocable decision. This wasn’t always the case. Although it wasn’t well-publicized and wasn’t used very often, the “do-over,” or “pay-to-play” strategy as I liked to refer to it, enabled individuals who claimed Social Security at age 62 to repay 100% of their benefits received to date without interest and receive a higher benefit going forward based on their current age. Ironically, Social Security Administration ended the ability to use this strategy on December 10, 2010, four days after the third of a three-part series on this topic was published by Retirement Income Visions™ (see Pay-to-Play Social Security – Part 3 of 3).

Once you start receiving your Social Security retirement benefits, why would you want to stop receiving them? As pointed out in last week’s post, benefit amounts will increase by 7% – 8% each year that the start date is deferred between age 62 and 70, excluding cost-of-living adjustments (“COLA’s”). You may have started your benefits at age 62 or some other age before your full retirement age (“FRA”) since you thought this made sense at the time and later realized this wasn’t the right choice in your situation. Another possibility is that you learned about a strategy to suspend and restart your benefits at a later date in order to receive a larger monthly payment.

Stopping Social Security Before Your Full Retirement Age

Unlike the now defunct “do-over” strategy where you could repay 100% of your benefits received to date without interest at any time after you began receiving them, there’s a limited exception that enables you to employ a scaled-down version of this strategy. If you claimed benefits before your FRA and you’re within 12 months of when your benefits started, you can withdraw your application and stop your benefits by repaying 100% of what you received so far.

Stopping Social Security After Your Full Retirement Age

Between FRA and age 70, Social Security Administration allows you to suspend retirement benefit payments. This can be done either when you’re approaching your FRA and haven’t started receiving benefits yet or after you have reached FRA and are already receiving benefits. There are different reasons why you would want to do this that’s beyond the scope of this post.

While there are two exceptions when it comes to the irrevocability of the Social Security start date that may or may not be beneficial in a particular situation, these are limited exceptions. As emphasized in the last post, the age at which you begin receiving Social Security retirement benefits may possibly be the most significant factor in your ability to sustain financial security throughout retirement. As Billy Joel says in his song, Get it Right the First Time, “Get it right the first time, that’s the main thing. I can’t afford to let it pass. Get it right the next time, that’s not the same thing.”

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