How to Suspend Social Security Benefits

Social Security usually doesn’t offer a ‘takeover’, but retirees can take advantage of this option in a few specific cases. For those who find they can manage without their monthly benefit check, suspending it later can help get a bigger payout. But don’t confuse this strategy with withdrawing Social Security benefits, a strategy that works in other circumstances.

Here’s what you need to know about suspending Social Security benefits and when someone might want to.

What does suspending social security mean?

Suspending your Social Security means exactly one thing, although many retirees may confuse it with a similar process called withdrawing your benefits.

Social Security Suspension

If you have reached full retirement age – which varies according to the year you were born – and are not yet 70, you can suspend your pension. The key phrase here is “when you have reached full retirement age.” If you have not done so, you cannot suspend your benefit.

Suspending your benefits can bring benefits, all of which have to do with increasing your income.

“If you continue to work or have other sources of income and do not need Social Security benefits, it may be beneficial to suspend them so that you will earn a higher amount in the coming years when you may need to,” said Shelli Woodward, a tax analyst at Merchant Maverick, a small business consultant.

For each year you suspend benefits, the monthly payout increases by 8 percent for those born in 1943 or later, says Andrew Latham, CFP, editor-in-chief of SuperMoney.com.

“Suppose, for example, that you were born on New Year’s Day in 1955,” says Latham. “You could have received your regular benefit in December 2020. But you could increase your benefit by up to 132 percent if you postponed the benefit until December 2024.”

It’s important to know that suspending your benefits to get that 8 percent annual increase only works until you turn 70. The maximum you can receive is 132 percent of your full pension benefit.

You can make the request orally or in writing and the payment will be suspended the month after you made the request. Suspending your benefits will automatically restart them when you turn 70, although you can restart them at any time. This calculator will help you estimate your future payout.

Additionally (and unlike the benefit withdrawal approach below), you don’t have to pay back the money you’ve already received from Social Security.

Withdrawal of Social Security

If you’ve changed your mind about receiving Social Security, you can file a request to withdraw your benefit at any age. You can cancel your benefits — technically called your primary insurance amount (PIA) — up to 12 months after you first become entitled to them.

“The Social Security Administration will then treat you as if you never enrolled,” said Bruce G. Kaserman, an investment advisor at Portfolio Medics in Vienna, Virginia. “Your PIA can then continue to grow until you decide to take benefits again.”

This “do-over” allows you to collect a higher benefit later, in accordance with the usual benefit adjustments. However, for a withdrawal, you must repay all money you received, including benefits to a spouse or child and any money withheld, such as for Medicare.

If you want to withdraw your benefits, you must submit Social Security Form SSA-521 and explain why you want to do so. In addition, anyone receiving benefits on your account must also agree to the withdrawal in writing. You are limited to one shot per lifetime.

If you are considering submitting a withdrawal, make sure you stick to the 12 month limit. Otherwise, you could get stuck in Social Security until you reach full retirement age and can suspend your benefits. For example, you can apply for early benefits at age 62, but decide at age 64 that you no longer need them because you have found a job. However, you may not suspend your benefits until you reach full retirement age, which may not be until age 67.

When does it make sense to suspend Social Security benefits?

Deciding to take a “do-over” on your Social Security benefits depends on many factors. But some of the biggest are changing expectations for your lifespan, a new financial situation (perhaps because of a job), or even a planning strategy with a spouse to maximize your benefit. But all of these factors revolve around getting the most after-tax benefit from the program.

  • Live longer. If you expect to live longer than you previously thought, it may make sense to suspend your payouts and try to get the biggest advantage you can. You can do a break-even analysis to find out what makes the most sense. But if you’re married, you’ll want to consider when your spouse receives benefits and how that affects your overall payout.
  • taxes. If you work when you’re collecting Social Security, much of your benefit could be swallowed up by heavy tax rules, especially if you file early. “You already lose 25 percent for taking benefits early, and for every $2 you earn over $19,560, you lose $1 in benefits,” said Chuck Czajka, Certified Social Security Claiming Strategist (CSSCS) and founder of Macro Money Concepts in Stuart, Florida. So you can claim benefits early, get a job, and realize that your after-tax benefit isn’t what it should be.
  • Misunderstanding. “A person who starts collecting at a younger age may not realize that he is holding a lower monthly benefit amount than he is entitled to if he waits until he is older,” said Chris Orestis, president at The Retirement Genius, a company specializing in health insurance. pension issues.
  • Medicare costs. Retirees often have Medicare premiums withheld from their benefits, so if you withdraw or suspend your benefits, you’ll have to make payments yourself. “If you take supplemental Medicare Part B insurance, you’ll be billed separately if you want to continue that coverage until benefits resume,” Woodward says.
  • No one in your file. If no one else in your state is claiming benefits, it might also make sense. “Remember, if you suspend your retirement benefits, it also means that anyone who receives benefits, except a divorced spouse, will not be able to receive benefits during the time your benefits are suspended,” Latham says. “Also, any benefits you receive on someone else’s record will also be paused.”
  • Able to afford it. If you are waiting for a higher benefit, you should be able to cover your expenses until your benefit starts again. And if you take benefits, you should be able to pay your living expenses, as well as refund any amount you’ve already received — quite a task.
  • Other circumstances. Suspension or withdrawal of benefits may make sense in other cases, depending on precisely the circumstances, such as “collecting a survivor’s benefit for a widow or widower and surviving dependents, collecting a spouse’s benefit versus your own benefit in the event of a divorce, or remarriage,” Orestis says.

If you delay your payout, you can still benefit from the increase in your full retirement benefits and from any cost of living (COLA) adjustments due to inflation.

“Will it be valuable?” asks Czajka. “Well, next year benefits will rise due to the high cost of living. The call is somewhere around 9 percent. If you postpone the payment, you will receive a deferred pension discount of 8 percent. The increase in the COLA benefit will be based on that high number.”

What it comes down to:

Making social security decisions can be complex to say the least. The program offers so many choices, and your lifespan is unknowable, making a good decision difficult. That’s why it’s so important to find a financial advisor who will work in your best interest.

“As with all retirement income planning, it’s important to work with a specially trained financial advisor who understands claims strategies,” Czajka says. “See all options before you pull the trigger.”

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