My work as a financial planner led me to pursue the National Social Security Advisor (NSSA) designation to better serve clients. My research uncovered a few critical strategies that Americans can use to maximize their Social Security benefits.
Social Security is a cornerstone of retirement income for most Americans, typically representing 40% of pre-retirement earnings. The decision of when to claim is permanent, with a few notable exceptions. Understanding these exceptions is crucial for optimizing your retirement plan.
The “Do Over”
The Social Security Administration (SSA) allows a one-time “withdrawal of application” within 12 months of first claiming benefits. The catch? You must repay all benefits received, including any spousal or family benefits claimed on your record.
This strategy is useful for people who claim benefits after an unexpected job loss but then quickly find new employment. For example, a friend of mine was laid off at 63 and began receiving benefits. When he found a new job five months later, he was able to repay the benefits and withdraw his application. This prevented his monthly benefit from being permanently reduced for the rest of his life, which is what happens when you claim before your full retirement age (FRA).
“Start-Stop-Start”
If you miss the 12-month window for a “do over,” you can voluntarily suspend your benefits. This strategy, however, is only available once you’ve reached your FRA. By suspending benefits, your monthly payment will increase by 8% per year until age 70.
This was a popular strategy during the 2008-2009 recession. Many people who lost their jobs claimed Social Security early and couldn’t withdraw their application within 12 months. When they reached their FRA, they suspended their benefits to take advantage of the delayed retirement credits. It’s important to remember that if you suspend your Social Security, you will need to pay Medicare premiums directly, as they are no longer deducted from your payments.
Retroactive Social Security Benefits
If you are over your FRA, you may claim up to six months of retroactive benefits in a lump sum. Be aware that doing so will permanently lower your ongoing monthly benefit to the amount you would have received six months earlier.
This strategy can be helpful for individuals who need a cash infusion due to an unexpected health diagnosis or other emergency. For some, a lump sum of cash may be more valuable than a slightly larger monthly payment.
Navigating the complexities of Social Security is challenging, but understanding these key strategies is essential for making informed decisions. In a future column, I’ll delve into the SSA’s solvency and other ways to maximize your benefits.
Disclaimer: Advisory services offered through Kovitz Investment Group Partners, LLC. Visit www.fortpittcapital.com for additional disclosures.
Bryson Roof is a financial advisor at Fort Pitt Capital Group in Harrisburg and has been quoted nationally in various finance publications including CNBC, U.S. News & World Report, and Barron’s.
