Strange But True: Claim and Suspend Social Security

Abstract

With the current financial crisis wreaking havoc on retirement savings, many older people have had to reassess their retirement plans – they may decide to work longer or, if already retired, to re-enter the workforce. For those currently in the labor force, working longer increases monthly Social Security benefits. Social Security benefits are actuarially adjusted so that, on average, lifetime benefits remain the same whether a person retires at any age between 62 and 70. So the later a person retires, the higher the monthly benefit. For those thinking of re-entering the workforce, Social Security provides for higher benefits later in exchange for withholding benefits while they are employed. For those under the Full Retirement Age (currently 66), this adjustment is accomplished automatically through the annual retirement earnings test. For those over the Full Retirement Age, the adjustment can be made through the voluntary option of “claim and suspend.” The “claim and suspend” strategy also enhances the claiming options of one-earner couples. For example, a husband who reaches the Full Retirement Age may elect to claim and immediately suspend benefits, allowing his wife to receive a spousal benefit based on his earnings record. The husband is then free to continue working and receive delayed retirement credits, which increases not only his monthly benefit but also his wife’s survivor benefit. By using “claim and suspend” in this way, the couple can enhance the value of their lifetime benefits...