The Social Security Do-Over and Suspension Clauses Could Get Retirees a Bigger Benefit Check

Social Security is often a major source of income for retired workers, so a bigger benefit could mean a substantial improvement in living standards for millions of Americans. Multiple factors impact Social Security payouts, but the most easily controlled variable is claiming age.

Read on to see how claiming age factors into benefit payments, and to learn how retired workers that have already claimed benefits can increase their payout with Social Security's do-over and suspension clauses.

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How age impacts Social Security retired worker benefits

The Social Security benefit paid to a retired worker equals their primary insurance amount (PIA) adjusted for early or delayed retirement. The PIA is the benefit a retired worker is entitled to at their full retirement age (FRA). But workers that claim Social Security before FRA receive less than 100% of their PIA, and workers that delay beyond FRA receive more than 100% of their PIA.

There are only two pertinent restrictions. Social Security retirement benefits cannot start earlier than age 62, and delayed retirement credits stop at age 70, so it never makes sense to claim later.

The table below shows the relationship between FRA and birth year, and it details what portion of their PIA a retired worker would receive at ages 62 and 70.

Data source: The Social Security Administration.

Most retired workers shortchange themselves by claiming Social Security too early

A recent study funded by the Federal Reserve Bank of Atlanta found that over 90% of workers aged 45 to 62 would optimize lifetime spending power by delaying Social Security until age 70. For workers in that age group, the median increase in lifetime income was $182,370, according to the authors. But very few people actually wait that long. Less than 10% of newly awarded retired workers claimed Social Security at age 70 last year.

The study also found that 84% of individuals aged 63 to 69 would benefit from delaying Social Security until 70 with a median increase in lifetime income of $92,218. The authors say that gain arises primarily from the option to suspend retirement benefits at FRA and restart at age 70. Alternatively, retired workers can completely undo their claiming decision in certain circumstances.

Here's a look at both options.

Retirees can suspend payments to get a bigger Social Security benefit

Retired workers that have reached FRA (but are not yet 70 years old) can suspend Social Security to earn delayed retirement credits. Those credits increase their benefit by two-thirds of 1% per month, or 8% per year. But the benefit increase stops at age 70, meaning it never makes sense to claim (or restart) Social Security any later.

As a caveat, when a retired worker suspends their benefit, any spouse or child that has claimed Social Security on their work record also stops receiving benefits.

Retirees can (sometimes) undo their claiming decision to get a bigger Social Security benefit

Retired workers can cancel or withdraw their benefits application by filing a Form 521 with the Social Security Administration. Doing so completely reverses their decision to claim Social Security, but there are two important restrictions:

• A benefits application can only be canceled or withdrawn within 12 months of approval, and retired workers can only file a Form 521 one time.
• Retired workers that cancel or withdraw their benefits application must repay any income they have received from Social Security, including any money withheld for Medicare premiums.

Reversing a claiming decision not only allows retirees to earn delayed retirement credits after FRA but also eliminates the early retirement reduction for claiming Social Security before FRA. In other words, reversing a claiming decision can be more advantageous than simply suspending benefit payments.

To illustrate that point, I'll end with a hypothetical example: A worker born in 1960 with a PIA of $1,000 per month would receive $700 per month if they claimed Social Security at age 62. That worker could suspend benefits at FRA to earn delayed retirement credits. If they restart Social Security at age 70, their new benefit will be $868 per month.

Alternatively, if that worker reverses their claiming decision by filing a Form 521, they could eliminate the early retirement reduction for claiming before FRA and earn delayed retirement credits once they reach FRA. If they restart Social Security at age 70, their new benefit will be $1,240 per month.