Suspending Social Security Monthly Benefits

This column is the second in a series of three columns discussing the opportunities individuals have to redo a prior Social Security claiming decision. The first column discussed withdrawing a Social Security claim within the first year. This column discusses suspending Social Security monthly benefits.

The second opportunity an individual can redo their initial Social Security claim for a monthly retirement benefit applies to individuals who began receiving their monthly benefit before their full retirement age (FRA). As such, their Social Security monthly was reduced, and more than 12 months have passed since they began receiving their monthly benefit. Unlike those individuals who withdrew their initial claim for benefits within one year of the initial claim and repaid any prior monthly benefits received, these individuals cannot withdraw their initial claim because they have at least one year’s worth of monthly benefits. However, they can increase their monthly Social Security retirement benefit by suspending their monthly benefit until at least they reach full retirement age (FRA) and then refile for their Social Security monthly benefit. By waiting past their FRA to refile, they will earn delayed retirement credits for every year past FRA until age 70 (8 percent per year past their FRA, or two-thirds of 1 percent per month for every month past the month of their FRA).

When an individual suspends Social Security retirement benefits previously received, they are not required to repay prior monthly benefits received. In addition, any benefits received by a spouse or a child younger than age 18 (“family” benefits) (based on the individual’s eligibility for Social Security benefits) do not have to be repaid. But these family benefits will be suspended until the individual refiles for their Social Security benefit. The only exception is an ex-spouse. If the individual has an ex-spouse who is receiving half of the individual’s benefits (“ex-spousal” benefit), the ex-spouse does not have to suspend their monthly benefit.

Two examples are given below to illustrate the advantage of suspending Social Security benefits and subsequently refiling for benefits. The first example is for a single person and the second example is for a married couple.

Example 1. Lucy files for her Social Security retirement benefit at age 62 and then suspends her benefits at her FRA of age 67. She reapplies for her benefit at age 70. Lucy’s Social Security monthly benefit at age 67 is $2,500. At age 62 her monthly benefit is $1,750 (70 percent of $2,500). At age 70, when Lucy reclaims her monthly benefit at age 70 (which started when she was 62 and suspended when she was age 67) is $2,150 (124 percent of $1,750).

In order to understand why this suspending strategy may be advantageous for Lucy, the assumption is made that Lucy has a life expectancy of 90 years. Her total lifetime benefits will be calculated on two claiming strategies which are: (1) Claiming for monthly benefits at age 62 and continuing to receive benefits until dying at age 90; and (2) Claiming for monthly benefits at age 62, suspending benefits at age 67, and then refiling for benefits at age 70.

Note that the calculations are using real Social Security monthly benefits which means the benefits received are not adjusted from year to year by cost-of- living adjustments (COLAs)

Strategy 1: Lucy files for her Social Security benefit at age 62 and does not suspend.

Strategy 2: Lucy files for her Social Security benefit at age 62, suspends her benefits at age 67, and then refiles for her benefits at age 70.

By suspending her benefit and refiling at age 70, Lucy will have received $625,800 less $588,000, or $37,800 more in total benefits.

If Lucy refiles at age 70, how long would she have to live in order to make her refiling worthwhile (that is, what is her breakeven age?)

The breakeven age for Lucy is age 82.5. If Lucy suspends her benefits at age 67, refiles at age 70 and lives until at least age 82.5, Lucy made the correct decision in suspending her benefits at age 67 and refiling at age 70.

The second example illustrates the claiming, suspending and refiling strategy for a married couple in which the higher earning spouse files early, suspends benefits, and then refiles at age 70.

Example 2. Steve and Elaine are married, and both were born in March 1960. They have a full retirement age of 67. Steve’s Social Security monthly benefit at age 67 is $3,000. Elaine’s Social Security benefit at age 67 is $1,200. Steve has a short life expectancy of 75 years while Elaine has a life expectancy of 90 years.
They both file for their benefits at age 64. Steve receives his monthly retirement benefit of $2,400 which is 80 percent of $3,000, and Elaine files for her Social Security monthly retirement benefit totaling $1,185 (her retirement benefit of 80 percent of $1,200 plus spousal benefits of 75 percent of [half of $1,500 -$1,200]. They continue these monthly benefits until Steve dies at age 75. After his death, Elaine begins monthly survivor benefits of $2,475 (82.5 percent of $3,000) until her death at age 90. Since Elaine begins survivor benefits after attaining her full retirement age of 67, she gets the larger of Steve’s monthly benefits of $2,400 at his death, or 82.5% of Steve’s monthly benefit at his full retirement age ($3,000).

The results are summarized below under Strategy 1: Both spouses file for their benefits at age 64 and Steve does not suspend his monthly benefit.

Strategy 1: Steve and Elaine file for benefits at age 64 and Steve does not suspend his monthly benefit.

In strategy 2, both Steve and Elaine file for their benefits at age 64 with Steve receiving a Social Security monthly benefit of $2,400 (80 percent of $3,000), and Elaine receiving a monthly benefit of $1,185 (80 percent of $1, 200 plus spousal benefit of 75 percent of half of $1,500 less $1,200).

However, at his full retirement age of 67, Steve suspends his retirement benefits. For three years until he is age 70, Steve receives no benefits while Elaine receives her monthly benefit of $960 per month. At age 70, Steve refiles for his retirement benefits of $2,976 per month (1.24 x $2,400 – which reflects three years of delayed retirement credits). If Steve dies at age 75, Elaine will then receive a surviving benefit of $2,976 per month, Steve’s monthly benefit at the time of his death, until her death at age 90.

The results are summarized below, under Strategy 2: Both spouses file for their benefits at age 64 but Steve suspends his benefit at age 67 and refiles at age 70.

Strategy 2: Steve and Elaine File for benefits at age 64, Steve suspends his monthly benefit at age 67 and refiles for his monthly benefit at Age 70

If Elaine lives to 90, then Strategy 2 would provide $940,860 less $889,020, or $51,840 more in lifetime benefits for Steve and Elaine. Strategy 2 bests Strategy 1 if Elaine lives to at least age 85 and three months.

This breakeven age of 85.25 is longer than the breakeven age of 82.5 for Lucy in Strategy 1 for two reasons. First, when Steve suspended his benefits at age 67 in Strategy 2, Elaine lost $225 per month of spousal benefits. Second, Elaine’s monthly survivor benefit in Strategy 1 exceeded Steve’s monthly benefit at his death by $75 per month. In short, there are complications that caused this couple’s breakeven age to be larger.