Did you know that you can suspend your Social Security benefits? When can this be done, and why would anyone want to do it?
Social Security benefits can be suspended or paused once an individual reaches their Full Retirement Age (FRA). After suspending benefits, they will continue to grow each year by 8% plus cost-of-living increases awarded until being reinstated.
It’s important to understand that the suspension of benefits will also suspend anyone else’s benefits that are tied to this Primary Insurance Amount, such as spousal benefits or children’s benefits.
There may be an instance in which an individual claims their Social Security at full retirement age and then later decided to go back to work. In this case they may not need the benefits, and the work income would cause the Social Security income to be taxed significantly. Rather than paying back all the Social Security benefits received in order to cancel the initial benefit claim (which can be done within 12 months), an individual could suspend benefits during these working years (remember, they have to wait to suspend until after FRA) and then reinstate them at the higher benefit level when they stop working.
This is just one instance of a reason to suspend benefits after full retirement age, and there may be others (such as taking advantage of a lower income to do conversions to Roth IRAs).
But it’s nice to know that the tool exists if the situation fits.