Social Security is a federal program of benefits that was developed in 1935 as part of President Franklin D. Roosevelt’s New Deal plan. One of the primary benefits provided by the Social Security system is that of retirement income.
The program, funded through payroll taxes, is managed by the government. Payments received today by recipients are taken from current payroll contributions that are made by today’s workers.
Age eligibility for social security retirement benefits
For many years, the “normal” Social Security retirement age was 65. However, the retirement age has since changed and is now based on what year the recipient was born. Full retirement benefits may now be received when a recipient reaches age 67 if they were born in the year 1960 or later, provided other criteria are met.
Paying back benefits and starting over
There is a way to make changes with Social Security retirement benefits. In this case, if a benefit recipient begins collecting at age 62, they have the option of changing their minds and starting over in the future, and thus reaping the higher benefit payments that would have been received by waiting until age 70.
In order to do so, the retiree has to file a withdrawal application and then repay what they had collected so far – plus any additional funds that were withheld for Medicare premiums. In addition, the retiree is even allowed to deduct this repayment or take an income tax credit for the taxes they paid on the benefit amount.
For example, a married couple who are both age 70 and began collecting Social Security retirement benefits at age 62, could actually raise their standard of living by roughly 20 percent by taking advantage of this technique.
It is important to really weigh the consequences of this strategy, though. If a retiree lives for many years beyond age 70, then this could be a great way to receive increased benefits for many years. If, however, the retiree passes away soon after using this techniques, they will have lost all of the benefits that they paid back – those received between age 62 and age 70 – in return for an increased monthly benefit, but for just a very short period of time.
Waiting to receive benefits