The decision on when to begin taking Social Security benefits is a complex one. The following discusses three strategies clients can consider in an effort to maximize the amount of benefits they receive.

1. Changing your mind

Many people think that once they elect to receive Social Security benefits, the decision is an irrevocable one.

There was actually a very attractive way to suspend benefits and restart at a later date. This little-known tactic has been gaining attention in recent years, due to more education of the public by some financial firms. Basically, a recipient could withdraw their application for Social Security retirement benefits, repay the total amount that they (and a dependent spouse or minor child) had received over the years, and reapply for a higher payment based on their current age.

Retirees may collect Social Security benefits as early as age 62, but monthly payments are reduced by 20 percent to 30 percent (depending on the year they were born) compared with what they would be if they claimed benefits at the normal retirement age, which is 66 for those who apply for benefits this year. Those who are willing to wait past their normal retirement age to collect their Social Security check can receive delayed retirement credits of up to 8 percent for every year they delay, up to age 70.

Some retirees who applied early and took reduced benefits later regretted not holding out for a bigger check. The do-over maneuver allowed them to repay their benefits and lock in a larger base amount for future cost-of-living adjustments. Plus, they were able to maximize lifetime benefits for a surviving spouse.

Although the repayment could cost $100,000 or more, it was cheaper to repay Uncle Sam and secure inflation-adjusted payments for life than it was to buy a similar amount of guaranteed income in the form of an annuity from an insurance company.

The publicity apparently led the Social Security Administration to rethink its policy.

“The agency is changing its withdrawal policy because recent media articles have promoted the use of the current policy as a means for retirement beneficiaries to acquire an ‘interest-free loan,” SSA said in a statement announcing its new policy. Separately, the bipartisan Commission on Fiscal Responsibility and Reform, which included recommendations for shoring up Social Security, called for eliminating what it described as a “loophole for wealthier retirees.”

The new withdrawal policy will still allow retirees to suspend their benefits temporarily and restart them later, resulting in slightly bigger checks to account for the months or years in which payments were not received. But the agency will no longer permit retirees to repay previous benefits. From now on, benefits may be suspended only once in a lifetime and only within 12 months of first claiming them.

2. File and suspend

While some spouses retire at the same time, many do not. The decision on when to begin taking Social Security benefits is a bit more complicated. Thanks to the file and suspend provision, married couples who retire at different ages can really maximize their benefits.

Assume Michael has reached his FRA of 66. He wants to continue working until age 70 to get his delayed retirement credits. Also assume his wife, Susan, is age 62, and just retired. She is fully insured, and could receive a benefit based on her own earnings.

However, she was in and out of the workforce over the years, resulting in a spouse benefit that is higher than her own benefit. Michael can file for Social Security benefits, but request an immediate suspension of benefits. This allows Susan to apply for a spousal benefit at Michael’s benefit level. Michael will not receive any benefits until he reapplies, presumably at age 70. At that time, Susan would receive a higher benefit, based on what Michael would have received at FRA. In addition, Susan’s survivor benefit would also increase.

3. The restricted application

In the example of Michael and Susan, what if Susan’s own benefit was higher than her spouse benefit? She may not want to draw on Michael’s record. Instead, she could draw on her own record.

How does this benefit Michael? He can do what is called restricting an application and file as a spouse on Susan’s record. As mentioned above, Michael is FRA. So, he would receive the full spouse benefit — one half of Susan’s benefit. At the same time, he would continue to earn delayed retirement credits on his own record. When Michael reaches age 70, he could re-file for benefits on his own record. This would also result in a higher survivor benefit for Susan.

Conclusion

The decision of when to begin taking Social Security benefits is a complicated one. Many factors need to be considered, and careful analysis must be done. Each person’s circumstances are different and must be looked at individually in order to maximize the benefits from this important source of retirement income. Individuals are encouraged to discuss their questions with a local Social Security office