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  • Writer's pictureChris Stein, CFP®

Suspended Benefits

In last week’s blog post, we talked about Retroactive Benefits.  This week, we explain a close cousin of Retroactive Benefits; Suspended Benefits.  Suspended Benefits is a claiming strategy available only after you reach your Full Retirement Age (FRA). Social Security recipients younger than their FRA are not able to suspend their benefits until they reach their Full Retirement Age.

Why Suspend Your Benefits?

Why would someone want to suspend their Social Security benefits?  There’s more than one reason, yet mostly it is to generate a larger monthly retirement benefit.  To understand the logic of Suspended Benefits, let’s look at an example. Say you decide to retire at age 62. To help meet living expenses you file for your Social Security benefits at that time.  When you claim benefits before your FRA your benefits are permanently reduced. In this case the reduction would have been 25%. Now fast forward four years. You’re now age 66, which is your FRA, and you decide you’re getting bored with retirement and you go back to work. (Don’t laugh, it happens quite often!)  With your new income you no longer need your monthly Social Security benefit check. You could take the money Social Security sends you every month and save it, helping you build a pool of money for later use. Or you can ask the Social Security Administration to hang on to your money for a while by temporarily suspending your benefits. By suspending your payments you can now take advantage of Delayed Retirement Credits, where your monthly benefit payments grow ─ up to 8% a year for every year you suspended ─ until you reach age 70.

Flexibility In Your Claiming Strategy

Another reason you may want to suspend your Social Security retirement benefits is to give yourself some flexibility in your claiming strategy.  In this example let’s say you’re healthy with a strong possibility of living well into your 80s or 90s.  To maximize your retirement income you want defer collecting Social Security benefits until 70, when you reach your maximum benefit payment age. However, by delaying so long you’re worried something will happen that you cannot foresee such as a dramatically reduced life expectancy or major financial emergency. In either situation delaying your Social Security payments may now not be a wise financial decision.  Once you reach your FRA if you file for, and then immediately suspend your benefits, you can still take advantage of the 8% Delayed Retirement Credits until age 70.  However, if something does happen and you now regret never receiving your benefits you can request a lump-sum check for the entire amount suspended. This is because Social Security essentially considers a suspended benefit to be paid, just never “collected”. They let you collect the benefit any time you want up to age 70. Of course they would recalculate your monthly benefits to account for the suspended benefit you are now collecting as a lump-sum payment, but as the saying goes, you can’t have your cake and eat it too!

Best Inflation Adjusted Annuity You Can Have

Finally Social Security remains one of the best inflation adjusted annuities you can have.  Few private annuities can offer such inflation adjusted income at the “price” Social Security does. Suspending your benefits isn’t for everyone, but when it works, it is an excellent strategy for maximizing your future inflation adjusted retirement income. To learn more about how Suspended Benefits work, please use the play button below to listen to our audio post.

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