For many retirees or senior citizens, it’s a little-known fact that they have the option of suspending and restarting their benefits from the Old Age, Survivors and Disability Insurance (OASDI) aka Social Security.
In certain situations, this can provide a lot of relief for seniors who need to temporarily halt their Social Security and restart them later.
If your client has reached the age at which they’re entitled to 100% of the benefit calculated from their lifetime earnings but are not yet age 70, it's possible for them to suspend their retirement benefits. This is one of the cases where they might consider suspending their Social Security – that is, if they chose to receive their Social Security before they reached their Full Retirement Age.
The Full Retirement Age can vary; anyone born in 1956 will have their Full Retirement Age at 66 and 4 months, which gradually rises to 67 for those born in 1960 and later.
But why would your client want to stop Social Security? When would such a move be advisable? In this article, InvestmentNews discusses the motivation behind suspended Social Security benefits and other important questions.
Senior citizen clients often rely mainly on their Social Security benefits for their income in their golden years. So, why would a client want their Social Security benefits suspended if they’re so important?
The main reason why your client chose to suspend their benefits is because they redeemed their Social Security before reaching their Full Retirement Age (FRA). Some retirees sign up for their Social Security when they first become eligible at age 62, simply because they have no other sources of income.
While this practice can help them with their living expenses, this can significantly reduce their benefit payments when they fully retire. Worse, doing this can make your client lose out on a much bigger monthly paycheck if they didn’t delay their retirement to age 70 instead. These are among the reasons why your client may decide to suspend then restart their cash benefits.
Here are other common reasons why seniors may choose to suspend their Social Security, then restart them later:
If your client is approaching their golden years and has a disability, they can be eligible for both the Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI).
What is SSI and how do I apply? Read about it here: https://t.co/oQ4OAdRnQi
— Social Security (@SocialSecurity) June 12, 2024
In case your client has a disability and gets Social Security Disability Insurance, here are instances when these can be suspended:
If the SSDI recipient can return to work and earns more than a specific monthly amount, this can result in a suspension of benefits. However, the SSA offers a trial work period (TWP) for SSDI recipients. The TWP arrangement allows them to work for up to a maximum of 9 months within a rolling 5-year period; this setup does not affect their benefit payments.
If an SSDI beneficiary’s condition improves and they can work, the SSA may suspend disability benefits. The SSA will conduct a Continuing Disability Review (CDR) to determine the degree of their work capability, then recommend a benefits suspension or continuance.
Once an SSDI beneficiary reaches full retirement age, their disability benefits automatically become retirement benefits. Except in this case, the disability benefits shift is not a true benefits suspension; SSI benefits can still be paid alongside retirement benefits.
These are other serious reasons for SSDI benefits suspension. If an SSDI beneficiary is sentenced for over 30 consecutive days, their benefits are suspended throughout their sentence. Meanwhile, SSI benefits are deemed fully terminated if a beneficiary is incarcerated for 12 consecutive months or longer.
This is another reason for having an SSDI beneficiary’s benefits suspended. If found providing false information or concealing financial income to the SSA, your client can have their benefits suspended.
There is a huge difference between having Social Security, whether it’s SSI or SSDI, terminated or suspended. A suspension of benefits can be temporary and removed if a beneficiary meets certain conditions, such as a decrease in earnings below the SGA limit or a change in medical condition.
On the other hand, the termination of benefits is permanent. This occurs when the beneficiary no longer meets the disability criteria under SSA’s rules, for instance.
If the SSA decides to suspend benefits, they must inform the beneficiaries in writing.
The SSA must tell your client in writing before it reduces or stops their benefits. In their notice, which can be a letter or email to your client, the SSA must mention:
Should your client receive notice, they should contact the SSA. Be warned: It is rare and unusual for SSA employees to directly contact beneficiaries or approach them personally to inform them of their benefits suspension.
If an SSA notice doesn't appear official, looks suspicious, or your client is personally contacted by someone claiming to work for the SSA, do not give them any information or money. This is likely to be a social security scam and they are best ignored. If this happens, your client should verify with the SSA whether the notice is authentic.
Should your client decide to halt their Social Security benefits temporarily and then have them resume later, they have a couple of options:
Withdrawing or canceling Social Security benefits is only possible in the first 12 months of becoming eligible for these benefits. This means this is a once-in-a-lifetime option and is only available once the beneficiary reaches their Full Retirement Age. Should your client decide to do this, they must contact the SSA and fill out Form 521.
The beneficiary must repay in full whatever amount they received before the withdrawal or cancellation of benefits. You could say that this process is a Social Security “reset” or “do-over”.
Dependents of Social Security beneficiaries who choose this option will also have their benefits cancelled. However, the Social Security benefits of their divorced spouses will continue despite this cancellation.
Did you know you may be eligible for Social Security benefits as a spouse, even if you’re divorced? Learn more about spouse’s benefits in today’s blog: https://t.co/kEaunMGkiM pic.twitter.com/UOCgwNfDNH
— Social Security (@SocialSecurity) July 11, 2024
For a better idea of what your client will owe the SSA pre-cancellation, calculate how much they received in benefits. Don’t forget to include benefits paid to their children or ex-spouse and withholdings for Medicare premiums.
Withdrawing or cancelling Social Security benefits can be a good option if a new source of income or work arises soon after your client retires, especially if they took their benefits well before retirement age.
And the next time they apply for Social Security, they’ll be older and get a higher monthly payment, helping them maximize their Social Security income in their less productive years.
The option to suspend Social Security benefits is possible once your client reaches Full Retirement Age. What this means is your client stops their benefits and no longer receives monthly payments until they restart or reinstate them. But unlike the withdrawal or cancellation option, there are no back benefits to repay, and this can be done even if your client has already been retired for many years.
When to use this option
The major advantage of using this option is that your client earns delayed retirement credits. Pausing Social Security can give significant benefits increases when your client reinstates them. The best scenario for using this option is if the retiree has found a way to earn income in retirement.
On the topic of delayed retirement credits, here’s a video that describes its benefits in more detail. The presenters also discuss how to know if delaying or suspending Social Security is the right move.
Remember, however, the SSA will automatically reinstate their Social Security in the month they turn 70 if they don’t apply for the reinstatement process themselves. But from then on, each monthly payment will be higher than the payments your client received before they suspended their benefits.
As opposed to the cancellation or withdrawal of benefits, your client’s family members won't have to pay anything back, as no benefits were taken. The caveat is that they likewise won't receive benefits until these are reinstated. However, the exception is again made for divorced spouses, who can still get benefits.
When your client decides to reinstate their Social Security benefits, they can either email, call, or make a personal appearance at a local SSA office and state their intention to do so. Here are some important items your client should know about the benefits reinstatement process at the SSA:
Any individual convicted and imprisoned will have their Social Security, whether it’s their benefits from a deceased family member, Disability, or Retirement benefits, suspended. These can only be reinstated after:
Your client’s Medicare typically does not change from suspending or withdrawing their Social Security. However, it’s important to remember that Medicare premiums are deducted from their monthly Social Security check.
You may have to assist your client in computing how much their Medicare premiums will cost them after they suspend or withdraw their Social Security benefits. After all, they’ll have to pay for the premiums out of their own pocket from now on.
Should your client cite a return to work as their reason for withdrawing benefits, advise them to evaluate and consider their employer-provided healthcare options. As this can vary in coverage and monthly costs, they should compare these plans with the benefits and premiums Medicare offers. They should go with the option that best fits their specific health needs.
Depending on the circumstances, it can be a simple or complex process for your client to suspend or withdraw their Social Security then reinstate them after a time. After considering factors like the size of their retirement nest egg, their health and longevity, they should also account for paying for their Medicare premiums before they decide to suspend or cancel their benefits.
As their financial adviser, you can help them weigh their options and suggest the most fitting strategy that will give them the most favourable outcome.
Don’t forget, you can always look up the opinions of experts in our retirement section here on InvestmentNews.
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