I knew it, then I forgot it, and now I know it again. What on earth am I talking about? A little known rule about Social Security benefits and something called a Voluntary Suspension of benefits.
On 2/15/2011 I wrote an article called How To Stop Social Security Benefits. In the article I mention that once you reach full retirement age (about age 66 for most) you can voluntarily suspend your benefits, then restart them again at your age 70. Why would you do this? Well, maybe you started benefits early, and you now realize that may not have been the wisest choice. If you suspend them, the benefit amount you get will go up by about 8% a year (due to something called delayed retirement credits). That means at 70 you'll get about 30% more than you were getting. (Ok, I am super simplifying the calculation here - for the details see Jim Blankenship's article File and Suspend Doesn't Have to Be All at Once, where he provides a detailed description of how the calculation works.)
I was reminded of this rule a few weeks ago when Joe Elsasser of Social Security Timing* (one of the calculators listed on my Social Security Calculator list) reached out to me in regards to an article that ran in the Wall Street Journal called Your Advisor Did What?
The article discusses an advisor who runs Social Security claiming strategies for his clients and in describing the result for one client says,
"Their strategy: Ms. Huntzinger will file for a spousal benefit at age 66, then file for her own full benefit at age 70. Meanwhile, Mr. Huntzinger plans to suspend his benefit at age 66 and restart it at age 70."
Apparently the journalist received calls from other Social Security experts who said that Mr. Huntzinger could not do that. The answer is yes, he can.
Joe asked me if I was aware of this rule. I answered no. I told him I would like to write about it. When I started writing today, I went back to my article of over a year ago, and realized, that at one point at least, I had been aware of this rule.
This conversation with Joe, the fact that even many experts aren't aware of all of the rules all of the time, the complexity of the rules, and the difficulty of remembering which rules apply at which ages was a solid reminder to me of why you need to use a Social Security calculator to look at all your options.
Most of the calculators offer basic claiming strategies for married couples, however not every calculator has the Voluntary Suspension rule built in. Joe told me his calculator offers this feature if one spouse has begun benefits, and when I tried it, it worked, but it is not as of yet able to incorporate strategies if both spouses have begun benefits. (Joe's software is available to financial advisors, but not directly to consumers.)
Larry Kotlikoff of Maximize My Social Security ( also listed on my calculator list) has software available directly to consumers, and said the Voluntary Suspension capabilities will be available in his software in about two weeks. I am not aware of any other calculators that offer the Voluntary Suspension calcs, but am hoping I will hear from the software vendors if they do.
In addition, not every calculator shows options for child or dependent benefits (relevant if you are about to collect Social Security and have dependents) or the windfall elimination provision/government pension offset (relevant if you or a spouse will receive a government pension for work not covered by Social Security), but some do, and others will likely add these features soon.
The good news: the calculators are not that expensive, so although it takes time, it does not cost a lot to try several of them. This may sound like a lot of work, but it could result in thousands, or in many cases, over a hundred thousand, of additional Social Security income.
Think about it. What if it took you 20 hours, and $200 to work through the numbers on several of the calculators, and in the end you get $10,000 more of Social Security benefits. On an hourly rate you would make $490 an hour.
Don't underestimate the value of your Social Security benefits. Calculate first, then claim.
*Author disclosures: At the time of writing this I am a subscriber of Social Security Timing®.