Changed Your Mind About Taking Social Security Early? Here Are Your Options

Social Security Retirement Benefit is an integral part of retirement planning for federal employees and private sector workers.  While taking benefits early offers immediate income, it can also mean a permanent reduction in your monthly payment amount. What if you claim early and then have a change of heart? Fear not; let us review your options and why someone would want to stop their benefit payments.  Understanding the process and its limitations is key to reviewing your next steps.

Why Would Someone Want to Suspend Their Social Security Benefit?

Retirement planning is based on many variables and assumptions. It could be that you didn’t expect to go back to work as a contractor.  Or, your expected expense could be lower than you planned.  Perhaps you inherited assets, so you no longer need as much income.  Many things could cause you to reconsider your financial plans and retirement strategy.  

The Social Security Earnings Test

The earnings test applies to Social Security when you file for your benefit prior to your full retirement age (FRA). If your income is over the limit threshold, you could lose the entire Social Security payment. Moreover, because you technically filed for it, your benefit is permanently reduced. You can learn more about the earnings test here.

Increasing benefit amount through delayed retirement credits

The reason why you would voluntarily suspend your Social Security is to earn delayed retirement credits.  Each year you wait beyond your FRA, your benefit amount would go up by 8% (or 2/3% for each month you wait.  For example, if your FRA is age 67, the impact of suspending benefits could increase your benefit by 24%.

Option 1: The Mulligan. Withdraw Your Social Security Claim

The Do-Over!  It can be done in golf or board games with your kids.  It can’t be done with Social Security, right?  Wrong!  Everyone is allowed a one-time chance to withdraw their benefits request within 12 months of receiving Social Security. It will involve paying back the entire amount you received plus any taxes withheld. If you are 65 and paying for Medicare, you must also pay back what Social Security deducted for Medicare premiums.  As long as you agree to give it all back, you can file Form SSA-521 (Request for Withdrawal of Application) and pretend that you never filed it in the first place. 

Option 2: What If It’s Too Late for A Do-Over?

It is too late for a do-over if it’s been over 12 months since you withdrew your benefits.  The only other option is to wait until you have reached your FRA and suspend it then.  The benefit here is the retirement credits mentioned above.  If you started social security early, your amount was reduced.  However, once the benefits are suspended, you can earn the credit and increase your retirement benefit. 

What Are the Rules For Suspending Social Security Benefits After Claiming It?

1. You can only suspend after you reach full retirement age. You can request the suspension prior to FRA, but the Social Security Administration will only start the month you reach FRA.
2. Your benefit increases by 2/3% each month you delay it, up to 8% annually.
3. You are free to resume receiving benefits and restart at any time. The total increase will be based on the months you delayed.
4. After age 70, you will not earn any more delay credit. The Social Security Administration will automatically resume your payment at 70. 

How suspending your benefit affects Medicare coverage

Suspending Social Security does not affect Medicare coverage. However, since the premium is automatically taken from your Social Security amount, you must set up direct payment to Medicare. 

Consequences of Withdrawing Your Social Security Claim

If you have minor children, suspending your Social Security also means suspending your family benefits. However, it might make sense once your children are over 18 and no longer qualify.

The Role of a Financial Planner in Making the Decision to Suspend Benefits

A good financial planner or financial advisor can explain these complicated rules. Moreover, they can help evaluate your financial needs and gauge if other income sources would be suitable. More importantly, they can provide you with what-if scenarios based on statistical probability so you can make a more informed decision.