I had a great question from an adviser in Hawaii the other day about one of his clients who had collected her Social Security benefits early at 62 and now regrets her decision.
J.R. wants to know if his client Carmen, who turned 66 last September, can voluntarily suspend her Social Security benefits. Carmen collects her benefits based on her own earnings record and even though they were reduced by 25% because she collected them four years early, they are still worth more than half of her husband's amount. That means she does not currently collecting a spousal benefit. Carmen's husband is 69.
“I seem to remember an article you wrote not too long ago suggesting that Carmen might be able to partially make up for her reduced benefit amount by suspending her current benefits and allowing them to grow at 8% per year until age 70,” J.R. wrote in an e-mail. “I suggested to Carmen that if she does this, her Social Security benefit at age 70 might be fairly close to the amount she would have received if she had elected to wait until FRA to file for benefits.”
That's right, J.R. The Social Security Administration notes on its website: If you are already entitled to benefits, you may voluntarily suspend current or future retirement benefit payments up to age 70.
But the next part of J.R's e-mail amounted to wishful thinking.
“In the meantime, she would be entitled to receive half of her husband's benefit,” he wrote. “Is my understanding of the Social Security rules with respect to Carmen's situation correct?” he added.
Unfortunately, the second assumption is not correct. Because Carmen started collecting her own retirement benefits at 62, she forfeited the right to restrict her claim to spousal benefits only, which she could have done if she had waited until her normal retirement age of 66 to claim benefits.
Now that she is 66, she can voluntarily suspend her Social Security benefit and they will continue to accrue delayed retirement credits up until age 70 when she can resume collecting them. But she will not be able to claim spousal benefits in the interim.
The math works like this: For every month you delay collecting benefits between your normal retirement age—66 in Carmen's case— up until 70, you earn a delayed retirement credit worth 2/3 of 1% increasing you basic benefit as much as 32% (48 months x .66% = 32%) .
Because Carmen turned 66 five months ago, if she suspended her benefits today, she could delay collecting benefits for 43 months until she turns 70. That would boost her retirement benefit by about 28% (43 x .66).
But there's another wrinkle Carmen has to worry about: Medicare.
Medicare Part B premiums are normally deducted from Social Security retirement benefits. If Carmen suspends her Social Security benefits, she will have to pay for her Medicare Part B premiums directly to the Centers for Medicare & Medicaid. However, she can arrange for CMS to debt her bank account each month.
The final part of J.R.'s e-mail was a bit disturbing. Carmen called the Social Security help line twice to ask about her options. She received a different answer each time. And that's not unusual.
“In a couple of other recent cases, other clients have received conflicting answers from Social Security representatives, too,” J.R. wrote. “What is an adviser to do?”
I'm afraid I don't have a good answer of how to deal with conflicting information. But I'm happy to serve as a tie-breaker and will try to uncover the right answer from the experts I deal with at Social Security headquarters.