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Two easy fixes for Social Security's biggest mistake

Feel like you need to take a mulligan on your Social Security strategy?

More than one-third of retirees decide to claim their benefits as soon as they can, at age 62.

"They feel nervous Social Security will not be there, so they take it early," said Jennifer Birchett, principal wealth advisor of True Wealth Management in Atlanta. "We try to encourage confidence that, yes, it will be there."

Retirees may have good reason to be worried. The program's trust fund is projected to run out of money in 2030, meaning there won't be enough cash to pay recipients 100 percent of their benefits. Republicans, led by house speaker Paul Ryan (R-Wisconsin), are proposing reforms such as raising the retirement age or capping payouts for high-income workers — something President Donald Trump has yet to officially weigh in on.

Still, many financial advisors, including Birchett, say claiming right away is a bad idea since you'll only get 75 percent of your monthly benefit than if you had waited. Ideally, older Americans should wait at least until they reach their full retirement age — which is currently 66 — in order to get the entire amount you are entitled to. Delaying your benefit even longer will mean an even bigger payout.

If you're starting to feel a little remorse kicking in, there is some good news. There are ways to undo this.


Hit the reset button

If it's been less than a year since you started receiving checks, you can withdraw your application completely.

This is especially important if you have a sudden change in your financial situation.

"I had a client who came into a sizable inheritance and was not looking at relying on Social Security anymore, but they had just applied two months ago," said Birchett. Because it had been less than a year, Birchett advised her client to withdraw their application.

In order to do that you have to be able and ready to write a check, because you have to repay any benefits you've received.

But once you do, it's as if you never even filed, and you can reclaim Social Security in the future without any penalty.

If you do choose this route, you may also need to amend your tax return, as benefits are taxable depending on your income.

Halt your payments

If you're beyond that one-year window, suspending your payouts is another option. To qualify, you need to be between your full retirement age and 70.

By stopping your payments, you'll earn an additional 8 percent for each year you don't collect, which can add up over time. There are no time constraints, so you can choose to halt payments for as long as or as little as you want.

Given recent changes to Social Security, those who are married may need to be extra careful before using this strategy.

"Under the new suspend rules, if you halt your payments, you will suspend any benefit a family member is receiving off of your work record," said Birchett.

So if someone is collecting a spousal benefit based on your Social Security, he or she, too, will have payments halted.

While it's nice to have the option of a do-over, getting your Social Security strategy right the first time is always the better idea. Before you claim, take the time to think about how to work this important source of income into your overall financial plan, so you can retire well.

More from Retire Well:
An account that can keep your retirement savings healthy
Retirement savings moves that cut tax bills
Married couples should rethink their Social Security claiming strategy