For those between the ages of 62 and 70, you have the opportunity to begin claiming your Social Security benefits, whether you were planning to or not. However, when you choose to start receiving your social security benefits is a decision that shouldn’t be taken lightly. It is also a decision that, in most cases, does not allow for a “do-over.” However, the little-known strategies below may not allow a complete do-over but may provide flexibility should your situation change once you have already started or have made the decision to start receiving your Social Security benefits.
1. Withdrawing Your Application to Receive Social Security Benefits
If you have recently started receiving Social Security benefits but have realized that you may have been better off waiting or your financial situation has changed, you could choose to withdraw your application for benefits within 12 months of becoming entitled to retirement benefits¹. For example, say you’ve chosen to take benefits now because you were furloughed or laid off. A few months from now, your financial situation has turned around, and you’re earning again. With some careful consideration, you could choose to withdraw your application.
This would mean you would stop receiving Social Security payments, and it would essentially “reset” them. Any future date you choose to begin receiving them again would be the date that determines how much you receive. If you choose this route, however, it’s important to note that you would be required to pay back any benefits you had already received.
2. Lump Sum Social Security Payment
As an individual nearing 70, you’ve intended to delay your Social Security benefits until the decade comes. But in some cases, there are times when you may need the money sooner than expected. Seemingly in the knick of time, there is an option to receive up to six months of benefits in a lump sum by initiating your Social Security retirement benefits early. While this is an important option to have, what are the consequences of applying early?
Many people are surprised by this opportunity when Social Security representatives provide it to those who may need it most. But unless you truly understand the trade-offs, you might not receive the benefits package that’s most beneficial to you.
What is a Lump Sum Social Security Payment?
A lump-sum payment is a one-time Social Security payment received in the current year for up to six months of prior-year benefits or back pay.² For example, if you begin claiming Social Security benefits at the full retirement age of 70 and choose to take the lump sum, you will receive a one-time payment reflecting what your benefits would have been over the past six months. Choosing this option also means that your future monthly benefits would reflect a retirement age of 69 1/2 moving forward. That's why it's important to note that while you would receive a large amount upfront, your monthly benefits would be less than if you did not take the lump-sum payment and keep your retirement age at 70. For every month that an individual postpones claiming Social Security benefits (up to age 70), they earn an additional 0.66 percent per month or eight percent per year in delayed retirement credits.³
For example, if a person turning 62 this year was earning an annual income of $60,000, here's how their Social Security benefits would differ depending on what age they decided to begin claiming them:
Age 62: $22,019, or $1,834 per month
Age 66: $29,359, or $2,446 per month
Age 70: $38,930, or $3,244 per month⁴
It’s important to acknowledge that retirement credits end at age 70, so delaying claiming your Social Security benefits beyond that age is unnecessary. Annual cost-of-living adjustments would also be applied to the larger base amount moving forward.⁵
Individuals vs. Spouses
Just like taxes, there are differences in benefits based on whether you’re single or married. If you’re a single individual who has been diagnosed with a terminal illness, for example, some advisors may recommend that you take the lump-sum amount and the smaller benefit. In this instance, this amount could be passed on to a successor, while your monthly benefit will end at the time of your death.
Alternatively, if you’re a higher-earning spouse that is facing a suddenly shortened life expectancy, you may want to reject the offered lump-sum payment. In this case, the survivor benefit will equal the same amount of your benefit, as the higher-earning partner, upon your death.⁶ If your surviving spouse has a long life expectancy, the boosted benefit can make up for the forgone lump sum. Suspend benefits once you have reached your Full Retirement Age and decide to allow benefits to increase up to age 70.
3. At Full Retirement Age, Suspend Benefits Up to Age 70
Most people are aware that if you elect to delay your benefits beyond your earliest eligibility date of age 62, your benefits will increase over time until you have reached the maximum benefit increase age of 70. However, many people are not aware that if you have elected to start social security benefits prior to your Full Retirement Age, you can choose to suspend your benefits once you reach your actual Full Retirement Age.⁷ By doing so, you can benefit from earning additional delayed retirement credits for each month your benefits are suspended. This, again, will result in a higher benefit payment once your benefits have been restarted. If you do choose to take advantage of this strategy, your benefits will automatically restart once you reach age 70 if you have not already restarted benefits before then. One major caveat. If you choose to suspend benefits, anyone (e.g., spouse, dependent child) that is receiving benefits based on your record will not be able to receive benefits for the same time period. However, a divorced spouse will be able to continue receiving benefits. If you are also eligible for Medicare benefits, you cannot have Medicare part B premiums deducted from suspended payments. You will be billed for these premiums. If you do not pay the premiums in a timely manner, you may risk losing your Medicare part B coverage. You do have the option of paying these premiums automatically from an account at your bank or financial institution. When you are ready to retire, if you still have questions the Social Security government site can't answer for you, make sure you chat with a knowledgeable financial advisor to help you set up your future. That way, you can sail into your retirement years with greater ease.