It's been a tough week for Social Security recipients. The Senate voted to block a cost of living increase for next year, even though there hasn't been a cost of living adjustment (COLA) in two years. Then the Social Security Administration announced that you'll no longer be allowed to pay back benefits and re-file for a higher withdrawal amount if you've been receiving benefits for more than one year.
The new rules mean the ability to pay back Social Security benefits will only be allowed during the first 12 months following the first month of receiving benefits. In addition, the new ruling states that only one withdrawal or payback is allowed per lifetime, and the ability to withdraw benefits will only be effective after the month in which the request is made.
Up to now, retirees who paid back their Social Security benefits and re-filed were able to receive higher payments based on delayed retirement credits. For example, if your full retirement benefit is $1,000, but you file early at age 62, you would receive a reduced monthly benefit of $750. On the other hand, waiting until full retirement age you would receive $1,000, and waiting until age 70 would give you $1,320 per month. Under the old rules, you could file at age 62, then pay back all benefits received and re-file at age 70, which would increase your benefit to $1,320 per month.
The Social Security Administration says it revised the withdrawal policy after the program was portrayed as an interest-free loan from the government. The Center for Retirement Research at Boston College estimated that the payback option cost the Social Security system somewhere between $5.5 and $8.7 billion.
Going forward, you can only take advantage of the payback option if you began taking benefits less than one year ago. The loss of this option makes it more important that you have a tailored Social Security strategy from the beginning because you may no longer be able to change them later on.
Although the new rules are effective immediately, the agency is providing for a 60-day public comment period and said it will publish another final rule to respond to comments and to make any "appropriate changes to the rule.
