It's an increasingly common scenario: Someone in their late 60s recently learned about the benefits of delaying Social Security benefits. The problem: they have already started collecting Social Security benefits.
Can someone in that situation reverse the decision and, if so, at what price?
That's the situation that Kevin Thompson, a retirement specialist with Mariner Wealth Advisers in Omaha, Neb., faced recently.
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“I have a new client who is 68 years old and who has been taking Social Security since age 66,” Mr. Thompson wrote to me in an e-mail. “His benefit is $2,000 per month. His wife, who will be 67 in July, has been taking Social Security since age 66 — not quite a year. Her benefit is $1,400 per month.”
Mr. Thompson's goal was to find a way to increase the husband's benefit, since it is the larger of the two and is the one the wife will inherit as a survivor benefit should he die first.
The adviser asked me if it would make sense for the wife to withdraw her application for Social Security and repay her benefits to allow her benefit to continue growing. “Meanwhile, she could file a restricted application to get one-half of his benefit ($1,000) for the next three years,” he wrote. “Is this possible?”
I confirmed that would be a valid strategy, but they would have to hurry before the 12-month window for filing Form 521 to withdraw an application and repay benefits closes.
I added that because the wife is beyond her full retirement age, she could also request a lump-sum payout of up to six months of retroactive benefits when she filed a restricted claim for spousal benefits. Remember, spousal benefits don't accrue delayed retirement credits, but they are eligible for a lump sum payout of up to six months of retroactive benefits if claimed after full retirement age.
Mr. Thompson also asked if it would be possible for the husband to suspend his benefit — without repaying them — in order to earned delayed retirement credits over the next two years until he turns 70. If so, could he then file a restricted application for half of her benefits?
Yes, anyone who has reached full retirement age can ask to suspend their benefits — but not repay them — in order to earn delayed retirement credits worth 8% per year up to age 70. That would boost his payout by 16% at age 70.
The husband's voluntary suspension would affect only his own benefit. His wife would still be eligible to collect spousal benefits on his record.
But, no, he can't retroactively file to restrict his claim to half of his wife's benefit. He has missed the 12-month window to redo his benefit claim.
Besides, if his wife withdraws her application for benefits, there would be no spousal benefit for him to claim anyway. She would be collecting on his record while deferring her own retirement benefits.
I warned Mr. Thompson that if the couple employed both strategies — the wife withdrawing her application for benefits and then restricting her claim to spousal benefits, while her husband suspended his — their income would drop from the current $3,400 per month to just $1,000 per month for the next two years, until the husband turns 70s and can collect a larger benefit.
The couple decided that price was too high to pay for larger Social Security benefits later.
“Since I sent my message this morning I have learned that this client has a cash flow concern, so reducing their income temporarily by suspending his benefit is not feasible,” Mr. Thompson. “In addition, as you have pointed out, he cannot claim a spousal benefit based on her work record, which eliminates $700 a month as a temporary income replacement source that I hoped might be available to help this couple.”
“Based on their current cash flow concerns, and with little or no savings available to pay back her benefits, the redo option is not feasible either,” he concluded. “So at this point, they may be bound to their original claiming decisions.”
It's another example of why it's better to help make crucial Social Security claiming decisions before it's too late.
