This article is intended for educational purposes only and is not legal advice. For guidance on your personal situation, please contact a lawyer.
Wait, what? You've finally started drawing Social Security, and now you're thinking of stopping? What gives?
Well, it can be easy for new retirees to find themselves not so retired after all, and to suffer a bit of sticker shock when they realize how much of their hard-earned federal benefits are taxable as though they were regular income.
It can make you feel as though you're working just to pay taxes, and you may want to rethink how much outside income you really want to make... or consider whether you should be drawing Social Security at all.
So, once you start, can you stop? The answer is perhaps. But of course, there are conditions.
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Owing taxes on up to 85% of your benefits can easily happen
If you're at full retirement age (FRA) and you make more than $34,000 in a tax year as an individual filer or more than $44,000 as a joint filer, up to 85% of your Social Security benefits may be taxable. That includes any reportable, taxable income such as regular wages, self-employment, interest, and dividends.
In addition, if you begin drawing Social Security at age 62, you also get into Social Security Administration (SSA) and IRS rules that penalize you with direct reductions of your benefits based on how much you make.
Those earnings-test rules go away when you reach FRA -- which this year is 67 for people born in 1960 and later and a bit earlier for those a bit older. Reach your magic number and you can make as much as you want without a reduction in your benefits, but you will also pay taxes on them if you exceed the earnings limit.
Your benefits could increase when you hit 70
There's a time slot for many that may make the most sense for such a strategy: After you've reached FRA and before you turn 70.
That's when you can file what the SSA calls a "request for suspension of retirement benefits." You can stop drawing your Social Security retirement benefits after you've already started if you have reached full retirement age and are not yet age 70.
Requests can be made orally or in writing, the SSA says, and the suspension will begin the month after you make the request. And here's a nice kicker: you can likely earn delayed retirement credits while your benefits are suspended, raising the payout when you turn 70 and the payments automatically begin again.
There could be other pipers to pay
But here's a different kind of kick -- in fact, a few of them. If you suspend your benefits, then others who receive the benefits on your record won't get them either, except for a divorced spouse. You'll also get billed directly for Medicare Part B, since those premiums can't be deducted from a Social Security payment that isn't happening. There's more, but the point is, do this with your eyes wide open.
There's another way to get a do-over on your benefits, called a withdrawal of your application for benefits. That can only happen within 12 months of starting them, and you must reapply later to restart them. Furthermore, you'll have to repay any benefits you and others on your record have already received, including any Medicare premiums or taxes that were withheld. And you can only do it once.
Image source: Getty Images.
Finding the right balance: A little help from your friends
Life happens. There are a lot of reasons why you might want to consider stopping your Social Security payments once they start. And there are a lot of reasons why you might not want to do that.
Considerations of expected lifespan and getting out as much as you can of what you paid in, your family's specific circumstances, how you feel about working itself -- there are so many considerations here.
Finding the right balance is up to you, but you should also seek advice from an expert, such as a Certified Financial Planner. They can help you weigh the pros and cons of such a decision and help you decide what's best for you as you work to make the most of your retirement years.
Full disclosure: I recently had such a conversation with our family's long-time, well-trusted CFP. That counseling session helped confirm my decision to keep on working and view taxes on my Social Security benefits as just another cost of doing business, as a kind of passive income I earned over a lifetime of work.
