Ask Bob: Is it Possible to Stop and Restart Social Security Before Full Retirement Age?

Financial adviser David Cechanowicz explains how to stop and restart Social Security benefits.
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Question

My wife turned 62 in September 2019 and applied in January 2020 for her benefit. If she changes her mind and gives that money back before 12 months, does she have to wait until full retirement age (FRA) at 66 years and 6 month to restart? Or can she restart the benefits at any time before FRA?

Also, if after getting benefits beginning at age 70 and you continue to work, is Social Security deducted from your paycheck? Will the income generated after age 70 be counted to complete the 35 years of working? I turned 70 in September 2019 and started benefits. I’ve only worked for 18 years, so far.

Answer

Sometimes, individuals who file for Social Security retirement benefits find that their financial circumstances will allow for repayment of those benefits, says David Cechanowicz, a senior financial planner at REDW Wealth. They can then file again for benefts at a later date at a higher benefit amount

David Cechanowicz

David Cechanowicz

“There are several important rules for you to consider,” he says, “and if the circumstances are correct, you can repay the benefits and file at a later date.” In order to stop benefits you will have to apply for a “withdrawal of benefits.” The following list details the rules that will apply.

  • An individual must be within the first year of collecting retirement benefits. Benefits can be withdrawn only within twelve months of the date that benefits were first claimed. You are allowed a withdrawal of benefits only once in your lifetime.
  • Benefits can only be withdrawn prior to full retirement age. If you are past your full retirement age you can suspend your benefit between your full retirement age and the maximum claiming age of 70 (and the benefits of everyone else who can claim on your work record). However, withdrawals after full retirement age are not allowed.
  • If an individual wishes to withdraw the benefit claim, he or she must have the money available to repay all of the benefits in a lump sum, including any benefits paid to auxiliary beneficiaries, such as a spouse or child. If Medicare premiums were withheld from benefits, they must be repaid as well. If income taxes were withheld, they also must be repaid.
  • Auxiliary beneficiaries (if any) must agree to the withdrawal in writing.
  • Since your spouse was age 62 at the time of claiming, she would not be covered by Medicare, However, if covered, Medicare benefits may also be withdrawn, but individuals may have to pay higher premiums at a later date if/when they decide to re-enroll.
  • Any individual that requests a withdrawal of benefits may refile for benefits at any time up to the maximum claiming age of 70. It is not limited to full retirement age.
  • You may also need to file amended income tax returns for the benefits that were reported prior to repayment.

“From the standpoint of procedure,” says Cechanowicz, “benefits may be stopped by filling out the Social Security form SSA-521. If you file the SSA-521 form, you will have 60 days to cancel a withdrawal once it is approved.”

Continuing to Work While Collecting Social Security Benefits

“Many individuals continue to work after filing for Social Security benefits,” notes Cechanowicz, adding that the rules for working and claiming Social Security benefits are complex and may cause significant issues and financial surprises for those who work and claim benefits.

“Individuals that work and claim benefits are basically divided into two groups,” he explains, “those who claim benefits prior to reaching full retirement age and those who claim on or after their full retirement age.” Individuals that claim on or after their full retirement age are able to collect all their wages and their Social Security retirement benefits without restrictions. “However, claiming prior to full retirement age exposes working claimants to the Social Security earnings test which begins to “clawback” or recover benefits paid if the claiming worker earns too much money,” he notes. In 2020 a worker is exposed to the earnings test once he or she earns more than $18,240 per year. Once a worker reaches the threshold, Social Security benefits must be repaid at the rate of $1 dollar of benefits for each $2 earned above the threshold.

In the year that an individual reaches his or her full retirement age, that threshold rises substantially. “In 2020 for example, a worker is allowed to earn $48,600 from January 1 up to the time he or she reaches full retirement age or FRA,” Cechanowicz says. For that period of the year prior to FRA, the repayment amount is $1 for every $3 of earnings over the threshold.

One of the most significant issues that a claimant may face while exposed to the earnings test is the delay of reporting overpayments and the repayment of the benefit amount. “Sometimes a worker may work a year, and then decide to retire in the year following,” he says. “However, he or she may find that their second year Social Security checks are reduced to zero, because of the prior year overpayments.” This can cause significant financial distress and cash flow problems. Cechanowicz recommends that individuals who are planning to retire early and work seek out the advice of a specialist who can advise on the consequences of the earnings test.

“There is, however, good news for those who continue to work and claim benefits, especially those who are working after their full retirement age,” says Cechanowicz. The Social Security Administration computes retirement benefits based on a worker’s inflation-adjusted highest 35 years of earnings. “Therefore working past retirement age can cause your benefit amount to increase if it shifts or adds to the highest 35 years of earnings,” he says.

Cechanowicz provides the following example: If you worked in 2019 and collected benefits that will cause an adjustment in your earnings history, sometime in the fall of 2020 you will get a notice from the Social Security Administration that your benefits have been adjusted and you will get a small catch-up check to pay you for the amount you should have been paid during 2020. Then, your monthly amount will be increased to the new total. If there other individuals, such as a spouse who is collecting benefits on your work record, he or she will also get an increase to their benefit amount.

But, notes, Cechanowicz, there are some things we don’t know from your question and you’ll want to be aware of.

“In a dual income household, where two individuals have their own work records, there may be three possible benefits that can be paid to the two workers,” he says. Each worker may be eligible for a retirement benefit on their own, and one of the two workers may be eligible for a spousal benefit because their own retirement is below the spousal benefit level. Cechanowicz notes some important facts to consider about spousal benefits:

Spousal benefits can only be paid on the account of a worker that is currently claiming benefits on his or her work record.

Spousal benefits are limited to 50% of the worker’s primary insurance amount, or the amount they are eligible for at full retirement age. Spousal benefits do not include the amount paid as delayed retirement credits for those who claim benefits after full retirement age.

Some individuals, born prior to January 2, 1954, may be able to claim a spousal benefit prior to claiming their own benefit, if the other party is currently claiming.

If both workers in a household are eligible for at least $1,500 per month in benefits on their own work record, chances are high that neither spouse will be eligible for a spousal benefit. Spousal benefits are generally paid in households with only one wage earner, or where one wage earner has significantly lower retirement benefits than the other.

Any time a worker has a retirement benefit that is greater than 50% of the other worker’s primary insurance amount, no spousal benefits can be paid. (Exception: some individuals born prior to January 2, 1954 may claim a spousal benefit and then switch to their own benefit at a later date.)

“Since your question indicates that you have a dual income household, you may want to research whether one of the two of you is eligible for spousal benefits,” says Cechanowicz. “Additionally, relative to the issue of your spouse claiming at 62 or withdrawing her claim, you need to look to both household benefits and think about which benefit will give your wife the largest survivor benefit, since she will probably live much longer than you,” he adds. If your own benefit is and will always be larger than hers, then you should carefully consider whether she should withdraw her benefit, since she will most probably ultimately inherit your benefit amount.

As mentioned before, these are complicated issues that bring in many factors that can have an impact on your household Social Security retirement benefits, not only today, but long into the future as well, Cechanowicz notes. “The claiming of Social Security benefits is one of the most important financial decisions that individuals will make in their lives, he says. “It is often helpful to seek out professional advice for this important of a decision.”

Got Questions? Get Answers!

Got questions about money, Social Security, Medicare, retirement accounts? Get answers. Email Robert.Powell@TheStreet.com. Kim McSheridan assisted with this report.

Question

My wife turned 62 in September 2019 and applied in January 2020 for her benefit. If she changes her mind and gives that money back before 12 months, does she have to wait until full retirement age (FRA) at 66 years and 6 month to restart? Or can she restart the benefits at any time before FRA?

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