Although Social Security doesn’t frequently provide a “do-over,” retirees may do so in a few specific circumstances. If a person can live without their monthly benefit payment for the time being, postponing it can help them qualify for a greater award in the future. Avoid confusing this tactic, which only applies in certain situations, with a withholding of Social Security funds.
The following information outlines when suspending Social Security benefits might be appropriate.
What does it mean to suspend Social Security?
Although many seniors may confuse suspending your Social Security with a process known as withdrawing your benefits, suspending your Social Security means exactly what it says.
Putting Social Security on hold
You can defer your retirement benefits if you’ve achieved full retirement age, which varies depending on the year you were born, and you’re under 70. If you’ve reached full retirement age is the essential phrase in this sentence. You cannot suspend your benefits if you haven’t.
Benefit suspension has advantages that revolve around boosting your income.
According to Shelli Woodward, a tax analyst at Merchant Maverick, a small business advisor, “if you continue to work or have other income sources and do not need the Social Security benefit, it can be beneficial to suspend them so that you will earn a higher amount in future years when it may be needed.”
For people born in 1943 or after, the monthly payout will climb by 8% for each year that benefits are suspended, according to Andrew Latham, CFP, managing editor of SuperMoney.com.
Latham cites the example of a person born on January 1st, 1955. “In December 2020, you could have begun earning your normal benefits. However, if you postponed receiving benefits until December 2024, you might boost them by up to 132%.
It’s important to understand that delaying your benefit to receive the 8% annual increase only works until you turn 70. Therefore, the highest amount you might get is 132% of your total retirement benefit.
Benefits will be suspended one month after you submit your request, which can be either verbally or in writing. Your benefits will automatically resume if you suspend them at the age of 70, though you are always free to do so. You can estimate your future compensation using this calculator.
Additionally, you don’t have to pay back the money you’ve already received from Social Security (unlike the withdrawal of benefits strategy below).
Removal of Social Security benefits
You can apply for a withdrawal of payments at any age if you’ve changed your mind about receiving Social Security. Your primary insurance amount (PIA), also known as your benefits, can be canceled up to a year after you first become eligible for them.
According to Bruce G. Kaserman, an investment advisor with Portfolio Medics in Vienna, Virginia, “the Social Security Administration will then regard you as though you never enrolled.” Your PIA will then keep increasing until you opt to resume receiving benefits.
By using this “do-over,” you can increase your payout later on in accordance with the customary Social Security benefit changes. Any money you’ve received, including benefits for a spouse or kid and any money withheld for Medicare, must be repaid if you make a withdrawal.
You must submit Social Security Form SSA-521 along with an explanation of your decision to withdraw your benefits if you wish to do so. Everyone who receives benefits through your account must also give written permission for the withdrawal. You are only permitted one withdrawal a year.
Make sure to meet the 12-month limit deadline if you’re considering filing a withdrawal. If not, you risk being stuck on Social Security until you reach full retirement age and can stop receiving payments. You might, for instance, apply for benefits early at age 62 and then decide at age 64 that you no longer require them because you have a job. You won’t be able to stop receiving your benefit, though, until you reach full retirement age, which might happen at age 67.
When is it appropriate to halt receiving Social Security benefits?
There are numerous considerations when deciding whether to get a “do-over” on your Social Security award. But among of the largest ones are a change in your outlook on how long you’ll live, a change in your financial circumstances (perhaps as a result of a job), or even a joint planning strategy with your spouse to maximize your benefit. But the goal of all of these variables is to maximize the program’s after-tax benefit.
- more time. It can make sense to put a hold on your payouts and work to accrue as much benefit as you can if you think you’ll live longer than you originally anticipated. A break-even analysis can be used to determine what is the most sensible course of action. If you’re married, though, you should consider how your total payout may change depending on when your partner begins receiving benefits.
- Taxes. If you are working when you receive Social Security, strict tax laws may consume a significant portion of your income, especially if you file early. For every $2 you earn over $19,560, you will lose $1 in benefits, according to Chuck Czajka, a Certified Social Security Claim Strategist (CSSCS) and the owner of Macro Money Concepts in Stuart, Florida. “You already are losing 25% for accepting benefits early,” he adds. As a result, you can apply for benefits early, find work, and then realize your after-tax benefit isn’t what it ought to be.
- Misunderstanding. According to Chris Orestis, president of the retirement-focused company The Retirement Genius, “A person who starts collecting at a younger age may not realize that they are locking in a lesser monthly benefit amount than what they are entitled to if they wait until they are older.”
- Medicare expenses Medicare premiums are frequently deducted from retirees’ benefits, so if you withdraw or delay your benefit, you’ll have to make any payments up front. If you use supplemental Medicare Part B insurance, you will be charged individually if you want to keep your coverage going until your benefits start up again, according to Woodward.
- Nobody listed on your record. It might make sense if no one else on your record is applying for assistance. Remember that if you suspend your retirement benefit, everyone who receives benefits on your record—aside from a divorced spouse—will not be allowed to do so during the period in which your benefits are suspended. “Any advantages you obtain on the record of someone else will also be halted,” was added.
- willing to pay for it. You’ll need to be able to pay your bills up until your benefit resumes if you’re waiting for a larger benefit. And if you withdraw your benefits, you’ll need to be able to pay for both your living expenses and the repayment of whatever money you’ve already received, which is a difficult task.
- additional conditions In other situations, such as “receiving survivor benefits for a widow or widower and dependents, collecting on a spouse’s benefit against your own in the case of divorce, or a remarriage,” according to Orestis, a suspension or withdrawal of payments may make sense.
You can still benefit from the increase in your full retirement benefits and any cost of living adjustments (COLAs) brought on by inflation if you want to postpone your payout.
Will it be worth anything?” Czajka queries. “Well, given the high cost of living, benefits will rise in the upcoming year. Nearly 9% of people are talking. You can earn an 8% deferred retirement credit by delaying receiving benefits. This large sum will serve as the foundation for the COLA benefit increase.
To sum up
Social Security decision-making can be challenging, to put it mildly. Making the right pick is challenging because the software provides so many options and your lifespan is unknown. Finding a financial advisor who will act in your best interests is essential because of this.
Working with a qualified financial advisor who is knowledgeable about claiming tactics is essential, as it is with all retirement income planning, according to Czajka. Before firing the gun, consider all your choices.