A retiree must always strive to maximize their Social Security check, even if it means temporarily pausing your benefits. Yes, it may surprise you, but it is true. Under certain circumstances, it makes sense to pause Social Security benefits in order to make the most of the benefits. In this article, we will discuss all about pausing or suspending Social Security benefits, including who can do it, the reasons and the process.
A retiree who has reached full retirement age (FRA) can temporarily pause Social Security benefits, in order to earn delayed retirement credits. We call it “suspension” of benefits. Suspending the benefits will allow the monthly benefit to grow up to age 70. The retiree, however, is free to restart the benefit any time after they turn 70.
Also, a Social Security recipient of any age can end their Social Security claim anytime if they have collected benefits for 12 months. They, however, will have to repay the benefits received by them, their spouse or dependents. In such a case, the Social Security Administration (SSA) will treat them as if they never enrolled for the benefits. We call this “full withdrawal” of benefits.
If a person has been receiving the benefits for more than 12 months, they won’t be eligible to withdraw the benefits. On the other hand, if a person has fully withdrawn their benefits, they have 60 days from the day SSA approves their withdrawal to cancel their “full withdrawal” request.
Following are the reasons why you may want to pause Social Security benefits:
Minimizing taxes
If you want to minimize your tax liability, then it makes sense to suspend or withdraw benefits that are not needed. A taxpayer may be able to minimize or completely eliminate the taxes on Social Security income by waiving the benefits.
Such a move is logical if you expect a higher tax burden or expect income from other sources to push you into the higher income bracket.
Allowing benefits to grow
When you pause benefits, they don’t necessarily get lost; rather you may regain them later. In fact, by suspending benefits now, you may be able to grow them. It may even prove a reliable income stream when you need it the most.
However, the rules regarding this are complex. Thus, it is important that you consult a financial advisor to get a clear idea of how pausing the benefits can help you later.
Potential impact on overall retirement income
To make the best of your financial situation, it is vital that you take into consideration all your financial sources, including your retirement savings, any other benefits you are eligible for, such as spousal or survivor benefits, and other potential sources of income.
It is possible that the decision to pause benefits impacts one or more of these financial sources. So, it is important that you assess your current financial situation to determine whether or not pausing benefits could boost your total income.
Adjusting for unexpected windfall
If a recipient receives an unexpected windfall, they also could pause their Social Security benefits. An unexpected windfall may boost your overall retirement income, thereby pushing you to a higher tax bracket. Thus, it could make sense to pause Social Security benefits to lower your tax liability.
To suspend the benefits, a recipient needs to file Social Security Form SSA-521. In the form, you need to give the reason for suspending the benefits now, and your Social Security number. Also, anyone who receives benefits because of you, needs to give their consent as well. You may get the option to keep the Medicare benefits, and you will need to mention that in the form as well.
You need to send the completed form to your nearest Social Security office. The SSA will contact you once they have made a decision on your withdrawal or suspension of benefits. If the SSA approves your request, they will inform you how much money you need to return.
The money that you will be asked to pay back is what you and your family have already received from Social Security, including:
- Benefits that your spouse or children received even if they don’t live with you.
- Any money withheld from your Social Security checks for premium contribution towards Medicare Part B, Part C or Part D.
- Voluntary tax withholding of federal income taxes.
- Any garnishments, including for child support and alimony, overdue federal taxes, civil penalties, or any non-tax debt owed to a federal agency.
Visit the SSA website for more details.
Final Words
There are many reasons why you may want to pause Social Security benefits temporarily, and there could be many reasons why you might not want to do that. When making this decision, you need to consider a lot of factors, including expected lifespan, other sources of income and your family’s financial situation.
It is crucial that you give careful thought to your decision to pause Social Security benefits because the SSA allows only one withdrawal per lifetime.
Although the decision is eventually yours, it is always better to take the advice of a Certified Financial Planner. A professional could explain to you all the pros and cons, and help you decide on how to make the most of your retirement years.
