Helping clients who regret claiming social security early

In what may be a bit of good news, previous speculation that the pandemic would lead to widespread early retirements seems to have been overstated. The uptick in “excess retirements” due to the pandemic is expected to fade.1 Labor markets largely recovered by the start of 2022 as unemployment among those ages 55 and over fluctuated between 2.4% and 3.1% throughout the year.2

But the outlook isn’t so rosy for everyone. According to the U.S. Census Bureau, these groups were among the most likely to have changed their planned retirement timing changed by pandemic-related events:3 

  • Education workers
  • Hospitality workers
  • Workers who self-reported their health status as “poor”

Unfortunately, the lowest-earning among survey respondents were more likely to report retiring early or moving up a planned retirement date, rather than delaying retirement.3

Why is that bad news?

For someone born in 1960 or later, full retirement age is 67 years old — but if they choose to start receiving benefits at 62, they’ll take a 30% reduction in monthly benefit payments from here on out.4 Delaying until age 70, on the other hand, would result in about 77% more in monthly benefit payments for that individual than they’d receive starting at 62.4

That’s already a compelling reason to consider delaying Social Security benefits. But what about your clients who already applied for theirs, and are having serious second thoughts?

One common myth about Social Security is that nothing can be done if someone realizes they claimed too early. In fact, these lesser-known options may allow some of your clients to reverse or change a decision. If employment, income or other circumstances changed dramatically, these tactics may be worth a closer look.

Plan A: Withdraw an application for Social Security benefits

If it has been less than 12 months since a client claimed Social Security benefits and they regret their decision, they can revoke their claim as if it never happened. Those who wish to have a do-over on their own timeline must formally request to withdraw their application through Social Security using form SSA-521, but there’s a catch. Recipients must repay the total benefits they and their family received since first applying, and they are limited to only one withdrawal request in their lifetime.5

Paying back Social Security benefits received is obviously more difficult for those who claimed 11 months ago than it is for those who started receiving benefits just last month. When you consider a 30% reduction for claiming at their earliest eligibility age, plus a likely longer period spent receiving those benefits, some clients may find it’s worth redirecting some assets to reverse course.

Plan B: Suspend benefits to earn delay credits

What about the client who missed the 12-month deadline, or who doesn’t have adequate assets to pay back what they’ve already received in benefits? Or the client who took longer than a year to get back to full employment, post-pandemic?

These individuals may benefit by suspending benefits once they reach full retirement age. Individuals who have reached their full retirement age can request a voluntary suspension of benefits until they reach age 70.6 The credit for each month of delay is ⅔ of 1%, which could add up to an increase of 8% per year applied to the primary insurance amount.6

That means a hypothetical client who suspends payments for a full four years between ages 66 and 70 could increase their monthly payments after starting at age 70 by as much as 32%. That could go a long way toward replacing much of the monthly income forfeited by claiming benefits before reaching full retirement age.

Offer a conversation on claiming strategies

Proactively reaching out to clients for a check-in may be prudent, especially for those nearing Social Security’s earliest eligibility age. Clients may have experienced changes in employment status, health, or family needs, all of which could affect their retirement outlook.

Timing is important, so don’t delay.

Amid all the change and volatility, it may also be an opportune time to review clients’ portfolios and assess the role annuities may play in their retirement strategies. Even if they can take steps to maximize benefits, some clients could still experience an income shortfall. Experiencing a lot of uncertainty in a short time could also influence their risk tolerance, making them more likely to appreciate the guaranteed income and security that annuities offer.

Our online guide, Are Your Clients Facing a Retirement Income Crisis, is available to help you better understand the situations many older Americans face and how you can strategize next steps. Access the free guide at the link below.



Marshall Heitzman
Written by: Marshall Heitzman, CFP®, ChFC, FLMI, CPCU, BFA™

Marshall is TruStage's Advanced Planning Expert and has more than 25 years of experience in the insurance and financial services industry. He consults financial professionals on advanced retirement planning concepts for retirement and wealth management clients.

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