Social Security is a crucial part of retirement planning. While most people know about claiming benefits at 62 or 70, there’s a lesser-known strategy that can significantly enhance your benefits. This guide will explain how suspending your Social Security benefits after claiming early can increase your monthly payments by up to 24%.
Claiming Social Security: The Basics
When you first claim Social Security benefits, you lock in a base amount. If you wait until age 70 to claim, your payments will be about 76% higher than if you had claimed at 62. Once you start receiving benefits, your income is mostly fixed, with only the annual cost-of-living adjustment (COLA) to increase it.
The Suspension Strategy
What Is It?
There’s a way to boost your benefits even after you’ve started claiming them early. When you reach your full retirement age, which is between 66 and 67 depending on your birth year, you can suspend your benefits. During the suspension, you earn delayed retirement credits, which increase your benefits by 8% for each year you delay, up to age 70.
How It Works
For example, if you suspend your benefits for three years, you can increase your monthly payments by 24%. This strategy is helpful for people who start claiming benefits early but then realize they have enough income from other sources and can afford to suspend their Social Security payments.
Is This Common?
Usage and Awareness
Not many people use this strategy. The Social Security Administration (SSA) doesn’t track how many people suspend their benefits. Financial experts, like Leanna Devinney from Fidelity, note that it’s rare for people to use this tactic, although it’s beneficial.
Changes in Regulations
In 2015, Congress tightened rules on another similar strategy that allowed one spouse to claim spousal benefits while both delayed their own benefits. This change has led to some confusion, but the suspension strategy remains a viable option for increasing benefits.
Other Strategies: File and Withdraw
How It Differs
The suspension strategy is different from the “file and withdraw” option, where you stop benefits within the first year of claiming and repay all received amounts to reapply later for higher benefits. This option is less common because repaying all benefits can be financially challenging.
Advantages of Suspending Benefits
Financial Security
Suspending benefits can help you get a better handle on your retirement finances. Some people claim early out of financial insecurity but later find they have enough money from other sources, such as an inheritance or a part-time job.
Longevity Considerations
People also get a better sense of their longevity over time. For example, the life expectancy for a 65-year-old healthy, non-smoking male is about 88 years, and for a woman, it’s about 90 years. The longer you live, the more beneficial it is to have higher Social Security payments.
Survivor Benefits
Suspending benefits can also help your spouse. If the higher earner delays claiming until 70, the surviving spouse can receive a larger benefit if they die first. Survivor benefits allow the surviving spouse to receive 100% of the deceased spouse’s benefit once they reach full retirement age.
Deciding when to claim Social Security benefits is crucial for maximizing your retirement income. While claiming at 70 provides the highest payments, suspending benefits after claiming early can also significantly boost your monthly checks.
This strategy helps you manage financial security, consider longevity, and maximize survivor benefits. By understanding and utilizing these strategies, you can make the most out of your Social Security benefits.
FAQs
1. What is the full retirement age for Social Security?
The full retirement age varies between 66 and 67, depending on your birth year.
2. How much can suspending benefits increase my payments?
Suspending benefits can increase your payments by 8% for each year you delay, up to 24% over three years.
3. Is the suspension strategy commonly used?
No, it is not commonly used. Many people are unaware of it, and the SSA does not track its usage.
4. What is the difference between suspending benefits and the “file and withdraw” option?
Suspending benefits means you stop receiving payments to increase future payments, while “file and withdraw” requires repaying all benefits received within the first year to reapply for higher benefits later.
5. How does suspending benefits help with survivor benefits?
If the higher earner delays claiming until age 70, the surviving spouse can receive a larger benefit if they die first.