What to Know About the Social Security "Do-Over"

Choosing the right time to start collecting Social Security benefits is tricky. Eligibility starts at age 62, and the extra cash flow may seem appealing, but waiting longer increases your future monthly payment.

Yet even with extensive planning and an advisor, what happens if you start collecting benefits only to realize you don't need the money so soon? Perhaps your portfolio outperforms your assumptions, you receive an unexpected windfall, or you find you've overestimated your retirement expenses.

The good news is there's a narrow window to reconsider your decision. If you elect to take Social Security before 70 but change your mind within 12 months of receiving benefits, you can withdraw your claim.

"Our financial situations and personal circumstances change all the time, especially in a significant transition period like the beginning stages of retirement," says Joseph Reyes, CFP^®, CWS^®, AAMS^®, CTFA, a senior financial planning specialist with Schwab's Wealth Strategies Group.

Here's what you need to know:

• You'll need to fill out Form SSA-521 to formally request withdrawal of your application.
• All individuals who collect benefits based on your record, such as a spouse or dependent, must provide written consent to the cancellation.
• You must pay back the full value of all benefits received, including those received by spouses or dependents. This includes any withholdings for Medicare premiums and taxes because the Social Security Administration (SSA) has already paid those on your behalf.
• You can do this only once during your lifetime. The next time you claim Social Security, there's no going back.

If you have second thoughts after having received benefits for a year, there's another out. Once you reach full retirement age—66 or 67, depending on birth year—you can instead pause your benefits to begin accruing an 8% benefit increase for every year you delay until age 70. (Note that this also will suspend benefits for any dependents.) You can pause and resume benefits multiple times by contacting the SSA by phone or in person.

If you're also enrolled in Medicare, you must begin paying Medicare Part B premiums directly to the Centers for Medicare & Medicaid Services until you resume your Social Security benefits. Withdrawing or pausing Social Security benefits will not affect your Medicare enrollment or eligibility.

Whatever you decide, it's a good idea to review your situation with your financial advisor. "Social Security timing should be considered as part of a broader retirement income strategy," Joseph says. "You and your advisor can consider a range of scenarios that take into account your general health, other income and retirement assets, tax optimization, and even the future needs of your spouse."