Taxes

Ask Larry: Can I Cancel My Social Security Benefit Application Without Getting Penalized?

Today’s column addresses questions about withdrawing an application after revising filing plans, potential effects of the Windfall Elimination Provision (WEP) and the Government Pensions Offset (GPO) and divergent SSA benefit estimates. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc, which markets Maximize My Social Security and MaxiFi Planner.

See more Ask Larry answers here.

Have Social Security questions of your own you’d like answered? Ask Larry about Social Security here.


Can I Cancel My Social Security Benefit Application Without Getting Penalized?

Hi Larry, I will turn 60 later this month and I applied last week for my Social Security widow’s benefits. The benefits will start on the first week of August. After realizing that if I make more than $18,240 I will get his by the earnings test.

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I’d now like to cancel my application. Can I do so without getting penalized? Thanks, Cassie

Hi, Cassie You can’t cancel an application once it’s been filed with Social Security, but you could withdraw it. There’s no cost or penalty for withdrawing an application, but you must refund any benefits you’ve received as a result of your application. You can also only withdraw a benefit once in your lifetime.

Note that withdrawing an application for a benefit is not at all the same thing as suspending receipt of a benefit — they’re completely different and unrelated actions.

I can’t tell you whether or not withdrawing your application is advisable without knowing your benefit rate and your expected earnings for 2020. Your best filing strategy is almost certainly one of the following either filing for reduced widow’s benefits early and then switching to your own record at 70, or filing for reduced retirement benefits on your own record early and then filing for unreduced widow’s benefits at full retirement age (FRA).

Normally, you would want to start out drawing the lower benefit first and then switch to the higher record when it reaches its highest potential rate. My company’s software — Maximize My Social Security or MaxiFi Planner — could sort all of this out for you and help you determine your optimal filing strategy. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry


Can You Help Me Understand How The WEP And GPO Would Apply?

Hi Larry, My husband (62) and I (58) are deciding when to best take Social Security. My husband worked in private industry for 40+ years and I worked in private industry for 32+ years but only 24 of those years is considered “substantial earnings” according to Social Security. I have worked for the State (Colorado) for over 10 years and is under the PERA system and will receive a monthly pension from PERA of $2,459/mo when I retire at 65. My husband is retiring this year. His PIA at his FRA is $2,939 and my PIA at my FRA is $1,516. I think I would be impacted by the WEP. Can you please help me understand the WEP and the GPO for us and when it’s best to start taking Social Security. Thanks, Rebecca

Hi Rebecca, I agree that it sounds like your Social Security retirement benefit rate would be reduced due to the Windfall Elimination Provision (WEP). The WEP doesn’t apply until a person starts receiving a non-covered pension, though.

Since the non-covered pension you will be drawing is based on government work, if you’re drawing your government pension then any spousal or survivor benefits for which you’d otherwise qualify would almost certainly be offset by 2/3rds of the amount of your government pension due to the Government Pension Offset (GPO) provision. So even if the WEP causes your primary insurance amount (PIA) to be less than half of your husband’s PIA, the GPO would reduce her spousal benefit rate to zero provided that you’re drawing her PERA pension.

If your husband dies before you and if you are at least full retirement age (FRA), you could be paid up to the higher of your own benefit rate or your husband’s rate. But again, the GPO offset would apply to the survivor rate if you’re drawing the PERA pension. Whether or not that would reduce your widow’s rate to less than her own rate depends on when each spouse starts drawing their benefits. Best, Larry


Why Am I Getting Different Estimates When I Call Social Security?

Hi Larry, I delayed retirement to get more benefits because I take care of a disabled family member. I’m now 69 and 4 months. I called several times and the benefit estimates quoted are different. Can they be using different calculators? Thanks, Phil

Hi Phil, I don’t believe that delayed retirement credits (DRCs) are automatically included in the estimates that come up in Social Security’s computer system until you actually apply for benefits and your claim is processed. So the employees you spoke with were likely adding the DRCs manually, which probably explain why you’ve been getting different estimates when you call Social Security.

Also, if you had earnings in 2019, those earnings may have only recently showed up on your earnings history. That could also explain the different estimates. In any case, no manual calculations will likely be involved when you do file for your benefits, and your DRCs will be automatically included.

The benefit calculator in my company’s software — Maximize My Social Security or MaxiFi Planner — uses the same calculation method used by Social Security, so you may want to use the software to obtain an accurate benefit estimate. As I noted above, Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry


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