One way to boost Social Security benefits: A do-over

Apparently, my recent blog about how married couples can coordinate their strategies in claiming Social Security to maximize their lifetime benefits served as a floodgate. And now that the gate is open, questions about Social Security benefits keep pouring in. Here is a good one from a financial adviser in Charlotte, N.C.: Can someone who collects reduced retirement benefits early — say, at 62 — suspend his or her benefits later and still earn delayed retirement credits? The answer is yes. This may be an appropriate strategy if you have a client who collected benefits early just because he could and now regrets his decision. Let's say he was entitled to $2,000 a month at 66 but he collected at 62, reducing his monthly benefit by 25% to $1,500. It used to be that retirees had the option of repaying the benefits that they had already received and restarting their benefits at a higher amount. The rules affecting this so-called do-over strategy changed in December 2010. Now retirees can change their minds once and repay their benefits, but it must be done within 12 months of claiming them. However, retirees still can voluntarily suspend Social Security benefits at any time. And they still can earn delayed retirement credits, which are worth 8% for every year that they don't collect benefits between their full retirement age and 70.

Read more: Social Security do-over: what are your options?

WAITING IS WORTHWHILE

So in the example above, the client collected $1,500 a month in reduced retirement benefits between 62 and 66. At 66, he voluntarily suspended his benefits and resumed collecting them at 70. At that point, his benefit is worth $1,980 per month — 132% of his previous amount — creating a larger base benefit for future annual cost-of-living adjustments and a bigger survivor benefit for his wife if he dies first. Remember: Delayed-retirement credits affect only the worker's benefit, not spousal benefits. So if his wife is collecting spousal benefits on his record, her monthly amount won't increase once he resumes collecting at 70. But survivor benefits are worth 100% of what he received during his lifetime, including the delayed retirement credits. So if he dies first, his wife will collect a larger survivor benefit as a result of his decision to suspend benefits temporarily and collect a larger amount later. Some advisers think it is a wise strategy for the main breadwinner to collect reduced benefits early at 62 and then to suspend them voluntarily between 66 and 70 to build them up again. The flaw with that argument is if the husband dies during that early-collection period, the surviving spouse could be stuck with a smaller benefit for the rest of her life. Some say that life insurance would protect against that possibility, but I am not sure that the added premium is worth the gamble. mbfranklin@investmentnews.com Twitter: @mbfretirepro