After Losing His Job at 62, He Starts Social Security and Then Faces an $8,400 Cost to Reverse Course

Quick Read

• Social Security allows a retirement claim to be withdrawn within 12 months of the first month of entitlement, treating it as though it was never filed, but that option can be used only once in a lifetime.

• To withdraw, the claimant must repay every dollar received — about $8,400 after six months of $1,400 payments — but doing so can preserve a benefit that is roughly 30% larger at full retirement age.

• He could also keep receiving benefits while working, although payments above the earnings limit would be withheld and later recalculated at full retirement age.

For someone hit by a layoff, Social Security can feel like a financial bridge. Unsure how long a new job search will take, he claims benefits of $1,400 a month. Half a year later, he is working again and no longer needs the money.

He now wants to reverse the decision. Social Security allows that, but only if he repays at least $8,400 so the original claim can be erased.

One Chance to Undo the Claim, and Only Within 12 Months

After retirement benefits begin, Social Security lets a person withdraw the application within 12 months of the first month of entitlement. If approved, the agency treats the claim as if it never happened, and he can refile later when he is older and eligible for a larger monthly amount. This can generally be done only once.

The 12-month clock starts with the first month of entitlement. Neither the layoff date nor the date of a new job changes that deadline.

Withdrawing cancels the entire claim. Suspending benefits is different and is available only after reaching full retirement age.

Why Repaying $8,400 Can Make Sense

Six monthly checks of $1,400 total $8,400, and he must return all money paid under the withdrawn claim. No interest is charged. The amount can be higher if family members received benefits on his record, since each of them must agree to the withdrawal. Any federal income tax withheld from the checks also has to be repaid. Some Medicare-related charges can apply as well, although at 62 he would typically still be years away from standard Medicare enrollment.

The payoff is a larger future benefit. Anyone born after December 31, 1959 reaches full benefit at 67, and claiming at 62 permanently reduces the payment by 30%.

That means a $1,400 check at 62 translates to about $2,000 at 67.

If he keeps working and files again at 67, he would receive about $600 more each month, or $7,200 more each year. But he would also forgo several years of payments in between, so reaching break-even would take far longer than 14 months. The exact timing depends on how much Social Security would have withheld while he was working.

Keeping the Checks While Working Is Also an Option

Returning to work does not automatically require him to withdraw benefits. If he keeps collecting before full retirement age, an earnings limit applies. For a person under full retirement age throughout the year, the limit is $25,560, and Social Security withholds $1 for every $2 earned above that amount.

For example, if he earns $55,560, that is $30,000 over the limit. Social Security would withhold $15,000 of his $16,800 in annual benefits. The agency usually withholds entire monthly checks first and settles any remaining difference later. When he reaches full retirement age, it recalculates his benefit to credit the months in which payments were withheld.

There is also a special rule for people who begin collecting partway through a year. It can allow full checks for eligible months when earnings are low, even if annual income exceeded the limit before retirement. That protection generally lasts only one year.

How to File Before the Deadline

The withdrawal request is filed on Form SSA-521, Request for Withdrawal of Application. He must submit it within 12 months of the first entitlement month, repay the benefits, and wait for agency approval. Applying for a job or starting one does not change benefits on its own; he has to complete the form himself.

Before filing, he should consider two questions: Will the new paycheck truly cover expenses so he no longer needs the monthly benefit? And can he repay $8,400 without draining the emergency savings he might need if the job also proves temporary?

Act Quickly to Limit the Cost of an Early Claim

The sooner he decides, the less he will need to repay. Still, a new job is not a guarantee of steady income, so giving up Social Security should be done only after weighing the risks carefully.

Help Avoid These 13 Retirement Mistakes Before They Derail Your Future

One investment mistake could create major risks for your retirement. Many investors make the same serious errors, such as being too conservative, taking large bets on supposed sure things, or paying excessive fees. Any of those mistakes can put hard-earned savings in danger.

Learn about mistakes even experienced investors make — and how to avoid them before it is too late — with this guide: 13 Retirement Mistakes and How to Avoid Them from Fisher Investments. (sponsor)