Social Security’s lesser-known do-over and suspension options can help retirees score bigger benefits. The age at which you claim your benefits will significantly impact their size. For instance, if a person with average earnings files for Social Security at age 62, their benefits will replace roughly 30% of their pre-retirement income.
However, delaying benefits until age 70 can increase their checks to more than 50% of their pre-retirement income. Despite the potential for larger benefits, around 25% of eligible U.S. workers claim Social Security at 62, with the majority doing so before they turn 70. Early claimers choose a smaller monthly benefit in exchange for a longer-term total number of checks, but some eventually regret this decision.
Fortunately, two rules allow these individuals to reverse course, potentially increasing their monthly benefits by up to 77%. A person’s Social Security benefits are determined by their lifetime earnings and claiming age. First, their inflation-adjusted income from the 35 highest-earning years is used to calculate their Primary Insurance Amount (PIA), which indicates the monthly benefit they will receive if they start Social Security at their Full Retirement Age (FRA) of 67 for those born in 1960 or later.
Claiming Social Security before reaching FRA results in reduced benefits, while delaying benefits past FRA results in increased benefits:
Benefits are reduced by five-ninths of 1% each month before FRA, up to 36 months, and by five-twelfths of 1% beyond that. Benefits are increased by two-thirds of 1% each month after FRA, or 8% annually, until age 70.
Claiming strategies for higher benefits
Retirees who have claimed benefits but are still within 12 months of having their application approved can withdraw or cancel their benefits application using Form SSA-521. Key conditions include:
– Filing Form SSA-521 within 12 months of benefits approval. – Repaying any received Social Security payments, including Medicare premiums withheld.
– Benefit applications can only be withdrawn once. Canceling the application allows retirees to eliminate the benefit reduction incurred for starting Social Security early and earn delayed retirement credits once they reach FRA. For example, a person born in 1960 who initially claimed at age 62 and later withdrew their application could receive 77% larger benefits by waiting until age 70 to refile.
Retirees who have reached their FRA can suspend their benefits to earn delayed retirement credits, although this will not eliminate any prior reductions. Payments can be suspended by notifying the Social Security Administration orally or in writing. For instance, if a person born in 1960 suspends their benefits at FRA (67) and resumes at 70, their monthly benefits can increase by 24%.
Understanding these rules can help retirees make better decisions regarding their Social Security benefits, resulting in potentially higher monthly payments. These strategies enable retirees to re-evaluate their claims to maximize their Social Security benefits. While the process may require some paperwork and financial considerations, the increase in monthly benefits may be worth the effort.
