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Plan Well, Retire Well

Saving and investing your money

New Limits on Social Security

You've probably read or heard about someone filing for Social Security, but later withdrawing his application to get higher benefits.

Here's how it worked:

  • The worker filed for benefits as early as age 62.
  • At a later age, the worker withdrew that application and paid back all benefits received, including benefits received by others (such as a spouse) that were based on his work record. There was no interest on the repayment.
  • The worker then re-filed to start receiving the higher benefits applicable to his new, older filing age.

But as of December 8, the rules got a little tougher.

Now, there's only a 12-month window during which you can withdraw your Social Security application. If you filed more than twelve months ago, you can no longer withdraw. And you can withdraw only once.

According to Social Security, most people who withdraw do it within one year and won't be affected by the new rules. The change is mainly intended to discourage those who used their Social Security payments as an interest-free loan from the government, and planned to withdraw years later.

Social Security also allows people to suspend benefits. Until these new rules went into effect, a worker could even suspend benefits retroactively, which meant that any benefits received by the worker had to be repaid. Now, you can suspend future payments but not any payments you already received.

Those who return to work, or continue to work, after filing for Social Security may think that they need to withdraw or suspend benefits. But that isn't necessary. Before Full Retirement Age, your Social Security benefits are reduced by $1 for each $2 earned above $14,160 (2010; indexed for inflation). What if you earn a lot of money and you receive no benefits from Social Security? No worries. You will automatically be treated as if you'd filed later, and any decrease in benefits for that early filing will be removed.

If you received benefits but they were reduced because of your earned income, your benefits will automatically be recalculated at full retirement age. The reduction for any months in which your Social Security benefits were affected by your earnings will be removed. Again, no worries.

The headlines may have scared you, but most Social Security beneficiaries are not affected by these rule changes. You can read the entry in the Federal Register for the details. The public comment period about the new rules goes through Feb. 7, 2011. The final rule document will be published after that. It will reflect any changes that might be made based on the comments received, so stay tuned, just in case there are any modifications.

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