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File Now. Suspend Later.

Photo courtesy of Lacey Raper on unsplash.com.

Photo courtesy of Lacey Raper on unsplash.com.

Suspending benefits is a facet of Social Security filing that usually only gets written about in connection with filing – File and Suspend is often referred to as a single act, but it’s actually two things.  First you file for your benefits, which is a definite action with the Social Security Administration, establishing a filed application on your record.  Then, you voluntarily suspend receiving benefits.  If this happens all at once, the end result is that you have an application filed with SSA, but you’re not receiving benefits.  Since you have an application filed (in SSA parlance, you’re entitled to benefits), your spouse and/or dependents may be eligible for a benefit based on your record.

Since you are not receiving benefits, your record earns delayed retirement credits (DRCs) of 2/3% per month that you delay receipt of benefits past your Full Retirement Age (FRA).  (Note: you can only suspend receipt of benefits when you are at or older than FRA, age 66 for folks born before 1955.)

It doesn’t have to happen all at once though.  You could file for benefits and receive them for a few months or a long period of time, and then suspend benefits later in order to receive delayed retirement credits to increase your benefit later.

For example, Tim started receiving his Social Security benefit at age 62, because he figured he couldn’t count on the government to make the funds available for him in the future, and by gum he was going to get what was coming to him.  By starting early, Tim has reduced his benefit from a possible $2,000 (had he waited until FRA to file) to $1,500 per month.  The crazy thing is that Tim has a pension that covers his and his wife Janice’s monthly expenses completely, so he doesn’t really need the SS benefit for living expenses.

A couple years later, Janice explained (tactfully of course) to Tim how he had unnecessarily thrown money away by filing so early.  Since more than 12 months had passed, he couldn’t do anything about it, right?

Wrong – once Tim reaches FRA, he has the option of suspending his benefits, which will provide the ability for his benefit record to begin accruing the Delayed Retirement Credits at the rate of 2/3% per month, or 8% per year.  After four years, Tim’s benefit could be increased by 32%, up to a new monthly benefit of $1,980 per month – almost as much as what his original benefit would have been. (Cost of Living Adjustments have not been factored into the equation.)

One Comment

  1. AnneNo Gravatar says:

    HI Jim:
    That is very interesting information ! Folks could “save a bundle” by reading this article: What I am trying to figure is: “How can I earn enough SSA work credits to be eligible for retirement before age of 70 to get SSA ? example I was a Nanny and an Apt. Superintendent for 20 years; I did not file any taxes though; luckily my parents have some savings for me because I am 63 now with few work credits !!@

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