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In rare instances, retirees may request a new evaluation of their application for Social Security benefits. People who are able to get by without their regular benefit payment for the time being may want to consider suspending it in order to accumulate funds for a larger future payout. Do not confuse this tactic with the withdrawal of Social Security benefits, which is applicable in different contexts.
If you’re wondering when you might want to suspend your Social Security benefits, here’s what you need to know.
If Social Security is put on hold, what does that entail?
Though many retirees get the two terms, “withdrawing your benefits” and “suspending your Social Security,” confused, they mean the same thing.
Putting a hold on Social Security
To stop receiving retirement benefits, you must be at least full retirement age (which varies by birth year) but younger than 70. If you’ve reached retirement age, that phrase is crucial. If you haven’t already done so, you can’t stop receiving benefits.
There are benefits to suspending your benefits, and they all have to do with making more money.
According to Andrew Latham, CFP, managing editor of SuperMoney.com, if you were born in 1943 or later, your monthly payout will increase by 8 percent for every year that you suspend benefits.
“Let’s say, for example, you were born on New Year’s Day in 1955,” Latham provides as an illustration. In December of 2020, you would have been eligible to receive your regular benefits. However, if you delay receiving benefits until December 2024, you could see an increase of up to 132%.
You should know that the 8 percent increase per year you get by suspending your benefit only applies up until you turn 70. That’s why 132% of your full retirement benefit is the most you can get.
The request can be made verbally or in writing, and the suspension of benefits will take effect the following month. Benefits that have been temporarily suspended will resume once the beneficiary reaches age 70, though this can be done at any time. It is possible to calculate a rough estimate of your potential payout with this tool.
And, unlike the approach described below, where benefits are withdrawn, you won’t have to give any of the money back to Social Security.
Taking Money Out of Social Security
Changing your mind about receiving Social Security benefits is a simple process that can be initiated at any age. Your primary insurance amount (PIA) benefits can be terminated up to 12 months after you first become eligible for them.
According to Bruce G. Kaserman, an investment advisor at Portfolio Medics in Vienna, Virginia, “the Social Security Administration will treat you as though you never enrolled.” It’s up to you when you want to start drawing from your PIA again.
This “do over” gives you the chance to build up a larger payout in the future, in line with the typical increases made to Social Security payments. However, if you make a withdrawal, you’ll have to give back any money you’ve already gotten, including any payments made to your spouse or children and any taxes or fees that were deducted, like Medicare.
Filing Social Security Form SSA-521 with an explanation of your withdrawal request is required. Anyone who is receiving benefits on your account must also sign a written consent form authorizing the withdrawal. You can only make one withdrawal at any given time.
Make sure you withdraw before the 12-month time limit expires if you plan to do so. If you don’t suspend your benefits before you reach full retirement age, you might be stuck receiving Social Security payments forever. It’s possible to start collecting early retirement benefits at age 62, then decide you don’t need them because you’ve found a job and stop collecting them at age 64. Until you reach full retirement age, which may not occur until age 67, you will not be able to suspend your benefit.
When would it be prudent to temporarily stop receiving Social Security benefits?
There are many factors to consider when deciding whether or not to request a “do-over” on your Social Security benefit. Most significantly, you and your spouse may decide to alter your strategy for maximizing your benefit in light of new information, such as an increase in your expected lifespan, a change in your financial situation (perhaps as a result of a new job), or both. In any case, these considerations all center on maximizing the program’s after-tax value.
The ability to live longer. If you think you’ll live longer than expected, it might make sense to delay payments until you’ve accrued the maximum possible benefit. A break-even analysis can help you determine the optimal course of action. If you’re married, however, you should consider the impact of your spouse’s benefit election on your own.
To maximize your benefit, it may make sense to put off receiving payments if you expect to live longer than expected. You can determine the best course of action by performing a break-even analysis. If you’re married, however, you’ll need to consider how your spouse’s benefit timing will affect both of your payouts. Taxes. If you are still employed at the time you begin receiving Social Security benefits, you may find that you have to pay a significant portion of your benefit to the government in the form of taxes. For every $2 you earn over $19,560, you will lose $1 of benefits, according to Chuck Czajka, Certified Social Security Claiming Strategist (CSSCS) and founder of Macro Money Concepts in Stuart, Florida. Therefore, you may apply for benefits prematurely, find gainful employment, and find that your net benefit is less than you expected.
A large portion of your Social Security benefit, especially if you file early, may be eaten up by onerous tax rules if you are still working when you begin receiving benefits. According to Chuck Czajka, Certified Social Security Claiming Strategist (CSSCS) and founder of Macro Money Concepts in Stuart, Florida, “you already are losing 25 percent for taking benefits early, and for every $2 you earn over $19,560, you will lose $1 of benefits.” For this reason, you may find that your net benefit is lower than expected if you apply for benefits early and then find a job. Misunderstanding. “A person who starts collecting at a younger age may not realize that they are locking in a lower monthly benefit amount than what they are entitled to if they wait until they are older,” says Chris Orestis, president of The Retirement Genius, a company specializing in retirement issues.
“A person who starts collecting at a younger age may not realize that they are locking in a lower monthly benefit amount than what they are entitled to if they wait until they are older,” says Chris Orestis, president of The Retirement Genius, a company that specializes in retirement issues. Spending on Medicare. Medicare premiums are typically deducted from retirees’ benefits, so if you withdraw or suspend your benefit, you will be responsible for making up any shortfall. If you want to keep your Medicare Part B supplemental insurance coverage after your Medicare benefits have been reinstated, Woodward says you’ll have to pay for it out of pocket.
Medicare premiums are typically deducted from retirees’ benefits, so if you withdraw or suspend your benefit, you will be responsible for making up any shortfall. It will be up to you if you want to keep your supplemental Medicare Part B insurance until your benefits are reinstated, Woodward warns. There is nobody in your file. It might make sense if no one else is using your social security number to get benefits. Remember that if you suspend your retirement benefit, no one else, with the exception of a divorced spouse, will be eligible to receive benefits on your record for the duration of the suspension, as advised by Latham. Furthermore, “any benefits you receive on someone else’s record will also be suspended.”
It could make sense if no one else is using your social security number to get benefits. Remember that if you suspend your retirement benefit, no one else, with the exception of a divorced spouse, will be eligible to receive benefits on your record during that time. If you are receiving benefits under another person’s name, those payments will be suspended as well. be financially capable of doing so. You should be able to pay your bills until your benefit is reinstated if you are waiting for a higher amount. As an additional complication, benefit withdrawal necessitates the recipient’s ability to cover not only their ongoing living costs, but also the repayment of any amounts previously received.
You should be able to pay your bills until your benefit is reinstated if you are waiting for a higher amount. Withdrawing benefits necessitates not only meeting your daily needs but also paying back any money you’ve already received, which can be difficult to do if you don’t have a steady income. Alternative conditions. In other situations, such as “collecting survivor benefits for a widow or widower and dependents,” “collecting on a spouse’s benefit rather than your own in the case of divorce or remarriage,” and so on, a suspension or withdrawal of benefits may make sense, as explained by Orestis.
Even if you decide to delay receiving your retirement benefits, you will still be eligible to receive the full amount due to you, plus any cost of living adjustments (COLA) made because of inflation.
Will it have any value?” Czajka wonders. Because of the rising cost of living, benefits will be raised next year. Somewhere around nine percent is what people are saying. A deferred retirement credit of 8% will be awarded if benefits are delayed. As a result, the COLA benefit increase will be calculated using that enormous figure.
A decision involving Social Security can be, to put it mildly, complicated. The program provides a wide variety of options, but it’s difficult to choose because you don’t know how long you’ll live. That’s why it’s so important to locate a financial planner who will put your interests first.
As Czajka puts it, “it’s important to work with a specially trained financial advisor who knows about claiming strategies” when it comes to retirement income planning. Before making a final decision, consider all of your options.
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