How to Maximize Social Security Benefits with Smart Claiming and Income Planning
Social Security is a cornerstone of retirement income—but when and how you claim can have a major impact on lifetime benefits. This article from Greenbush Financial Group explains 2025 thresholds, how benefits are calculated, and smart strategies for delaying, coordinating with taxes, and managing Medicare costs. Learn how to maximize your Social Security benefits and plan your income efficiently in retirement.
By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group
For many retirees, Social Security is a cornerstone of their retirement income. But when and how you claim your benefits—and how you plan your income around them—can have a major impact on the total amount you receive over your lifetime. With updated Social Security thresholds, limits, and rules, there are new opportunities to optimize your claiming strategy and coordinate Social Security with your broader financial plan.
In this article, we’ll cover:
How Social Security benefits are calculated and funded
Four ways to increase your Social Security benefit amount
How income and taxes affect your benefits
The impact of Medicare premiums and income planning
How delaying Social Security can create opportunities for Roth conversions
What to know about the earned income penalty if you claim early
Answers to common Social Security claiming questions
Maximizing Social Security During the Working Years
The foundation for a strong Social Security benefit starts during your working years. Understanding how the system works helps you make informed decisions about your career, income, and retirement planning.
How Social Security Is Funded and Calculated
Social Security is primarily funded through payroll taxes under the Federal Insurance Contributions Act (FICA). In 2025, workers and employers each pay 6.2% of wages (for a total of 12.4%) up to the taxable wage base, which is $176,000 in 2025. Any earnings above that amount are not subject to Social Security tax and do not increase your benefit.
Your benefit is based on your highest 35 years of indexed earnings—meaning each year’s income is adjusted for inflation to reflect its value in today’s dollars. If you worked fewer than 35 years, zeros are included in the calculation, which can significantly reduce your average and therefore your monthly benefit.
Key takeaway: Once your annual income exceeds the taxable wage base, additional earnings don’t raise your future Social Security benefit. However, working longer can still increase your benefit if you replace lower-earning years or zeros in your 35-year average.
Four Ways to Increase Your Social Security Benefits
1. Fill in or Replace Zero Years
If you have fewer than 35 years of work history, each missing year is counted as zero. Even one extra year of income can replace a zero and raise your benefit.
Example: If you worked 32 years and earned $80,000 annually in your final three years, adding those years could significantly boost your benefit calculation.
2. Delay Claiming to Earn Higher Benefits
You can claim Social Security as early as age 62, but doing so permanently reduces your benefit—up to 30% less than your full retirement age (FRA) amount. For those born in 1960 or later, FRA is 67.
If you wait past FRA, your benefit grows by 8% per year up to age 70, plus annual cost-of-living adjustments (COLAs).
Example:
Claiming at 62: $1,400/month
Claiming at 67: $2,000/month
Claiming at 70: $2,480/month
That’s a $1,080 per month difference for waiting between the ages of 62 and 70.
3. Maximize Spousal and Dependent Benefits
Spousal and dependent benefits can be valuable for married couples or retirees with young children.
Spousal Benefit: A spouse can claim up to 50% of the higher earner’s FRA benefit, provided the higher earner has already filed.
Divorced Spouse Benefit: You may qualify if the marriage lasted 10 years or longer, and you haven’t remarried prior to age 60.
Dependent Benefit: Retirees age 62+ with children under 18 may receive additional benefits for dependents.
Planning tip: For individuals who plan to utilize the 50% spousal benefit and/or the dependent benefit, the path to the optimal filing strategy is more complex because the spouse and dependents cannot receive these benefits until that individual has actually turned on their social security benefit, which, in some cases, can favor not waiting until age 70 to file.
4. Understand Survivor Benefits
If one spouse passes away, the surviving spouse receives the higher of the two benefits. This makes it especially beneficial for the higher-earning spouse to delay claiming to age 70, maximizing the survivor benefit and providing long-term income protection.
How Social Security Benefits Are Taxed
Up to 85% of your Social Security benefits may be taxable, depending on your combined income (adjusted gross income + nontaxable interest + half of your Social Security benefits).
Single filers: Taxes begin at $25,000 of combined income
Married filing jointly: Taxes begin at $32,000 of combined income
If you don’t need Social Security to cover living expenses right away, delaying benefits can not only increase your future income but may also help manage taxes by controlling your income levels in early retirement.
Medicare Premiums and Income Planning
Once you reach age 65, you’ll typically enroll in Medicare Part B and D, and your premiums are based on your Modified Adjusted Gross Income (MAGI). Higher income means higher premiums under the Income-Related Monthly Adjustment Amount (IRMAA) rules.
Because Social Security benefits count as income for these purposes, timing your claiming strategy can help you manage Medicare costs.
Roth Conversions: Turning Delay into an Opportunity
Delaying Social Security creates a window for Roth conversions—moving money from a traditional IRA to a Roth IRA at potentially lower tax rates before Required Minimum Distributions (RMDs) begin at age 73 or 75.
Benefits of Roth conversions include:
Paying tax now at potentially lower rates
Reducing future RMDs
Potentially reduce future Medicare premiums
Creating a tax-free income source in retirement
Leaving tax-free assets to heirs
Coordinating your claiming strategy with Roth conversions can improve long-term tax efficiency and enhance your retirement flexibility.
Claiming Early? Know the Earned Income Penalty
If you claim Social Security before full retirement age and continue to work, your benefits may be temporarily reduced.
In 2025, the earnings limit is $23,400. For every $2 earned over the limit, $1 in benefits is withheld.
In the year you reach FRA, a higher limit applies: $62,160, and only $1 is withheld for every $3 earned above that.
Once you reach full retirement age, the penalty disappears, and your benefit is recalculated to credit any withheld amounts.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Frequently Asked Questions (FAQ)
How are Social Security benefits calculated?
Social Security benefits are based on your highest 35 years of indexed earnings, adjusted for inflation. If you worked fewer than 35 years, zeros are included in your calculation, which can reduce your benefit.
What are the main ways to increase your Social Security benefits?
You can boost your benefit by replacing “zero” earning years, delaying your claim up to age 70 for an 8% annual increase past full retirement age, and coordinating spousal or survivor benefits strategically. Working longer and earning more during high-income years can also improve your benefit calculation.
How does delaying Social Security affect taxes and Medicare premiums?
Delaying benefits can help you manage taxable income in early retirement and avoid higher Medicare premiums triggered by the IRMAA income thresholds. This window can also allow for Roth conversions, which reduce future Required Minimum Distributions (RMDs) and create tax-free income in later years.
How are Social Security benefits taxed?
Up to 85% of your benefits may be taxable depending on your combined income (adjusted gross income + nontaxable interest + half of your benefits). Taxes begin at $25,000 for single filers and $32,000 for married couples filing jointly. Managing income sources can help minimize these taxes.
What is the earned income penalty for claiming Social Security early?
If you claim before full retirement age and continue working, benefits are reduced by $1 for every $2 earned above $23,400 in 2025. In the year you reach full retirement age, the limit increases to $62,160, and only $1 is withheld for every $3 earned over that amount. The penalty ends at full retirement age, when your benefit is recalculated.
What are spousal and survivor Social Security benefits?
A spouse can claim up to 50% of the higher earner’s full retirement benefit once that person has filed. If one spouse passes away, the survivor receives the higher of the two benefits. This makes it especially advantageous for the higher earner to delay claiming to age 70 to maximize long-term income protection.
How can Roth conversions complement Social Security planning?
Performing Roth conversions in the years before claiming Social Security or reaching RMD age allows retirees to shift pre-tax funds into tax-free accounts at potentially lower tax rates. This strategy can reduce future taxable income, manage Medicare premiums, and increase retirement flexibility.
Social Security Claiming Strategies: Early vs. Delayed Benefits Explained
Social Security can be one of your most powerful retirement assets—if you claim it strategically. In this article from Greenbush Financial Group, we compare early versus delayed claiming paths, explore spousal and survivor benefits, and explain how tax and income planning can help you unlock more lifetime income.
By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group
For many retirees, Social Security ends up being the single largest and most reliable income source in retirement. It is inflation-protected, provides survivor benefits, and lasts for life. Yet, many people cost themselves hundreds of thousands of dollars in lifetime income by claiming too early—or by ignoring the tax and spousal rules that make timing so important.
This article explores two common paths for claiming Social Security, the tax and survivor strategies that matter most, and how to build a decision framework that balances both the math and the emotional realities of retirement.
The Two Paths: Early & Active vs. Delay & Fortify
There is no one-size-fits-all answer to Social Security timing. Instead, retirees can think of two primary paths:
Path A: Early & Active (Claiming at 62–65)
Works best for those with health concerns or shorter life expectancy.
Provides cash flow to enjoy active early retirement years.
Can unlock additional benefits, such as spousal add-ons or child benefits.
Trade-off: Lower lifetime income and reduced survivor benefits.
Path B: Delay & Fortify (Claiming at 67–70)
Higher earner delays to 70, maximizing both their lifetime benefit and the survivor benefit for their spouse.
Serves as “longevity insurance,” providing a larger, inflation-adjusted check for life.
Opens the door for Roth conversions to reduce future required minimum distributions (RMDs) and future Medicare premiums.
Trade-off: Requires income from working or pensions, or drawing down on assets in the meantime
Path A: Early & Active (Claiming at 62–65)
For many retirees, claiming Social Security early feels like “getting what’s yours” after decades of paying into the system. And in some cases, it’s absolutely the right move. This path prioritizes flexibility and cash flow in the early years of retirement — often before traditional pensions, investment income, or part-time work fully kick in.
Let’s unpack when and why early claiming can make sense, and the trade-offs to watch out for.
Works Best for Those with Health Concerns or Shorter Life Expectancy
Social Security benefits are designed around actuarial averages. The longer you live, the more a delayed claim pays off. But if you have health concerns, a family history of shorter life expectancy, or simply want to maximize income during the “go-go” years of retirement, claiming early can be a rational and emotionally satisfying choice.
For example, a retiree who claims at 62 will receive about 70–75% of their full retirement age (FRA) benefit. While that’s a reduction, the earlier payments can add up over time if the individual doesn’t live into their 80s or 90s.
Rule of thumb: If you expect your life expectancy to be shorter than the early 80s, claiming before FRA may result in higher total lifetime benefits.
Provides Cash Flow to Enjoy Active Early Retirement Years
Many retirees want to travel, pursue hobbies, or help family members financially in their 60s while they’re still healthy and energetic. Social Security can serve as a predictable income base that helps fund this period — reducing the need to withdraw heavily from investment accounts during market downturns.
Consider a 63-year-old couple who wants to take advantage of early retirement while waiting for their portfolio to grow. Claiming one spouse’s benefit early might provide enough monthly income to bridge the gap and protect long-term assets.
Tip: Early claiming can work well as part of a “phased retirement” approach — easing out of the workforce while still maintaining a reliable income stream.
Can Unlock Additional Benefits, Such as Spousal Add-Ons or Child Benefits
Claiming early sometimes unlocks access to auxiliary benefits that wouldn’t otherwise be available. For instance:
A non-working spouse can start claiming a spousal benefit once the higher-earning spouse files for Social Security.
Dependent children under age 18 (or 19 if still in high school) may also qualify for benefits if a parent begins claiming.
This strategy can create a multi-benefit window, where the total family income from Social Security exceeds what the primary earner would receive alone — especially valuable for families still supporting dependents or paying for college.
Trade-Off: Lower Lifetime Income and Reduced Survivor Benefits
The biggest drawback to early claiming is mathematical: reduced monthly checks for life. Claiming at 62 permanently cuts benefits by roughly 25–30% compared to waiting until full retirement age. For married couples, this also means a smaller survivor benefit for the spouse who lives longer.
Over a 20- or 30-year retirement, that difference can add up to hundreds of thousands of dollars in lost income. It can also limit flexibility later in life when expenses like healthcare and long-term care rise.
To visualize this, here’s a simple comparison:
Path B: Delay & Fortify (Claiming at 67–70)
If the Early & Active path is about maximizing flexibility and early retirement enjoyment, the Delay & Fortify strategy is about building strength and security for the long haul. Delaying your Social Security claim allows your benefit to grow each year, providing powerful longevity insurance and boosting survivor protection for your spouse.
This path often works best for retirees who expect to live into their 80s or beyond, have other income sources to draw from in the meantime, or want to use the delay window for tax-efficient planning.
Higher Earner Delays to 70, Maximizing Both Their Lifetime Benefit and the Survivor Benefit for Their Spouse
For married couples, Social Security isn’t just an individual decision — it’s a household one. The higher-earning spouse’s benefit often becomes the survivor benefit for the remaining spouse.
By waiting to claim until age 70, the higher earner locks in delayed retirement credits that increase benefits by roughly 8% per year after full retirement age (up to age 70). That means a benefit that would have been $2,000 at age 67 could grow to about $2,480 per month by age 70 — a 24% increase for life.
That higher benefit continues for as long as either spouse is alive, making this strategy especially valuable for couples where one spouse is expected to live well into their 80s or 90s.
Example:
If one spouse claims early at 62 and the other delays to 70, the household creates a blend — immediate income now, and a larger, inflation-protected income base later that acts as a financial safety net for the survivor.
Serves as “Longevity Insurance,” Providing a Larger, Inflation-Adjusted Check for Life
Delaying Social Security is sometimes compared to buying an annuity — but without the fees or market risk. It’s an inflation-adjusted income stream that continues for life, backed by the U.S. government.
For those with strong health and longevity in their family history, this can be one of the best “investments” available, because the increase in monthly income provides protection against outliving assets in later years.
Breakeven point: Typically, the math favors delaying if you live past your early 80s. But beyond the numbers, many retirees value the peace of mind that comes with knowing they’ll always have a larger, guaranteed income base, no matter how long they live.
Opens the Door for Roth Conversions to Reduce Future RMDs and Medicare Premiums
One of the less-discussed advantages of delaying benefits is the tax planning window it creates. Between retirement (often mid-60s) and age 70, retirees may have lower taxable income, creating an opportunity to do Roth IRA conversions at favorable tax rates.
Here’s why this matters:
Converting pre-tax assets to Roth reduces future Required Minimum Distributions (RMDs) at age 73/75.
Lower RMDs can help manage Medicare premiums, which are based on income (IRMAA thresholds).
Roth income in retirement is tax-free, helping stabilize cash flow and protect against rising tax rates.
Strategy in action:
A retiree might use withdrawals from cash or taxable accounts to fund living expenses while converting portions of their traditional IRA to a Roth during those pre-70 years. Then, when Social Security finally starts, their taxable income is lower — improving long-term tax efficiency.
Trade-Off: Requires Income from Working or Pensions, or Drawing Down on Assets in the Meantime
The biggest hurdle in delaying Social Security is bridging the income gap. If you retire at 65 but delay claiming until 70, that’s five years of expenses that must be covered by savings, part-time work, or other income sources.
For some retirees, this is perfectly manageable. For others, it may mean drawing down more from investment accounts — which can be uncomfortable, especially during volatile markets.
The key is to view this period as a trade-off by drawing down on a larger portion of your retirement assets now for a higher guaranteed income stream later on. Many financial plans model this “bridge strategy” explicitly, showing how a few years of portfolio withdrawals can result in higher lifetime income and stronger survivor protection.
Building a Decision Framework: Balancing the Math and the Mindset
Choosing when to claim Social Security is part math, part mindset. The best decision balances financial optimization with personal goals and health considerations.
A helpful framework:
Start with longevity assumptions. Estimate based on family health and lifestyle.
Assess your income bridge. Can you fund living expenses until 67–70 without stress?
Run the household math. Model joint benefits, survivor income, and tax implications.
Weigh the emotional factors. Early claiming often feels more secure and immediate; delaying feels more strategic and protective.
Revisit regularly. If you’re 62 and unsure, you don’t have to decide today — claiming flexibility exists year to year.
The right Social Security claiming strategy isn’t about “winning” a mathematical breakeven test — it’s about creating confidence and control in retirement.
The Bottom Line
Social Security is one of the most valuable, inflation-protected income sources you’ll ever have. Taking the time to make a thoughtful, data-driven claiming decision can add tens or even hundreds of thousands of dollars to your lifetime benefits.
But just as importantly, it can bring peace of mind — knowing your retirement income is designed to support both your financial goals and your life priorities.
If you’re approaching retirement, consider running multiple claiming scenarios or working with a financial planner to build a customized Social Security plan that fits your household.
Because in the end, smart Social Security planning isn’t just about maximizing a benefit — it’s about maximizing the life you can live in retirement.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Frequently Asked Questions (FAQs)
What are the main differences between claiming Social Security early versus delaying benefits?
Claiming early (ages 62–65) provides immediate income and flexibility but permanently reduces monthly benefits by up to 30%. Delaying to age 70 increases benefits by 8% per year after full retirement age and strengthens survivor protection for a spouse.
When does it make sense to claim Social Security early?
Early claiming can make sense for retirees with health concerns, shorter life expectancy, or those who need income to support active early retirement years. It can also unlock spousal or dependent benefits sooner. However, it reduces lifetime and survivor benefits, so it’s best suited for households prioritizing flexibility over long-term income maximization.
What are the advantages of delaying Social Security until age 70?
Delaying benefits boosts lifetime and survivor income, provides inflation-adjusted longevity protection, and can create a valuable tax-planning window. Those extra years often allow retirees to perform Roth conversions at lower tax rates and reduce future Required Minimum Distributions (RMDs) and Medicare premiums.
How do spousal and survivor benefits factor into Social Security claiming decisions?
For married couples, the higher earner’s benefit often becomes the survivor benefit. By delaying their claim to age 70, the higher earner ensures the surviving spouse receives a larger, inflation-adjusted income for life—providing greater long-term financial stability.
What is the breakeven point for delaying Social Security?
Generally, if you live beyond your early 80s, delaying your claim tends to produce higher lifetime benefits. However, the optimal strategy depends on personal health, family longevity, and income needs during the delay period. Financial modeling can help identify the most efficient approach.
How can delaying Social Security support tax and Medicare planning?
The years between retirement and claiming benefits often provide a “low-income window” ideal for Roth conversions. This can lower future RMDs and taxable income, helping retirees stay below the IRMAA thresholds that trigger higher Medicare premiums.
How should I decide which Social Security claiming strategy is best for me?
The right approach balances math and mindset—combining life expectancy estimates, income bridge options, household tax impact, and emotional comfort. Working with a financial planner to test multiple claiming scenarios can clarify which path offers the best balance of income security and lifestyle freedom.
Social Security: Suspending Payments vs. Withdraw of Benefits Election
It’s not an uncommon occurrence when a retiree turns on their social security benefits, but then all of a sudden take on either part-time or full-time employment, begin making more income than they expected, and they start searching for options to suspend their social security benefits until a later date.
The good news is there are “do-over” options for your social security benefit that exist depending on your age and how long it’s been since you started receiving your social security benefits. The are two different strategies:
If you have started receiving your social security benefits but you now want to suspend receiving your social security payments going forward, you have two options available to you. You can either:
Suspending Your Social Security Benefit
Withdrawing Your Social Security Benefit
They seem like the same thing, but they are two completely different strategies. One option requires you to pay back the social security benefits already received; the other does not. One option has an age restriction; the other does not.
Some of the most common reasons why retirees elect to either suspend or withdraw their social security benefits are:
Retirees either take on either part-time or full-time employment or receives an inheritance, they no longer need their social security benefit to supplement their income, and they would prefer to allow their social security benefit to keep growing by 6% - 8% per year.
A retiree turns on their social security prior to Full Retirement Age, begins making income over the allowable social security threshold, and is now faced with the social security earned income penalty
Since social security benefits are taxable income to many retirees, by suspending their social security payments, it opens up valuable tax and wealth accumulation strategies. We will cover a number of those strategies in this article.
Social Security: Withdraw of Benefits
The Withdraw of Benefits option is ONLY available if you started receiving your social security benefits within the past 12 months. If you are reading this article and you started receiving your social security benefits more than a year ago, you are not eligible for the withdraw of benefits strategy (however, you may still be eligible for a suspension of benefits covered later).
You can withdraw your benefits at any age: 62, 64, 68, etc. We find that the Withdrawal of Benefits strategy is the most common for retirees that retired before their Social Security Full Retirement Age (FRA), turned on their SS benefits early, began working again, and make more income than they expected. They realize very quickly that this scenario can have the following negative impacts on their social security benefits:
They may incur an Earning Income Penalty which claws back some of the social security benefits that they received.
A larger percentage of their social security benefit may be subject to taxation
They may have to pay a higher tax rate on their social security benefits
By turning on their social security early, they permanently reduced the amount of their social security benefit. Had they known they would earn this extra income, they would have waited and allowed their social security benefit to continue to grow.
You Must Repay The Social Security Benefits That You Received
Since the Withdrawal of Benefits option is the truest “Do-Over” option, you, unfortunately, must return to social security all of the benefit payments you received within the last 12 months. If you received $1,000 per month for the past 10 months and you file a Form SSA-521, you will be required to return the $10,000 that you received to social security. However, in addition to returning the social security benefits that you received, you also have to return the following:
Payments made to your spouse under the 50% spousal benefit
Payments to your children made under the dependent benefit
Voluntary federal and state taxes that were withheld from your social security payments
Medicare premiums that were withheld from your social security payments
This is why this option is the purest “do-over.” Once you have filed the Withdraw of Benefits and repaid social security the required amount, it’s like it never happened.
One Lifetime Withdrawal
To prevent abuse, you are only allowed one “Withdraw of Benefits” application during your lifetime.
How To Apply For A Social Security Withdraw of Benefits
You can apply to withdraw your benefits by mailing or hand-delivering form SSA-521 to your local social security office. Once Social Security has approved your withdrawal application, you have 60 days to change your mind.
Suspending Your Social Security Benefits
Now let’s shift gears to the second strategy, which involves voluntarily suspending your social security benefits. Why is a “Suspension” different than a “Withdrawal of Benefits”?
You are only allowed to “suspend” your social security benefits AFTER you have reached Full Retirement Age (FRA). For anyone born 1960 or later, that would be age 67. Suspending your benefit is not an option if you have not yet reached your social security full retirement age.
You do not have to repay the social security benefits you already received.
By suspending your benefits, the monthly payments cease as of the suspension date, and from that date forward, your social security benefit continues to grow at a rate of 8% per year until the maximum social security age of 70.
Restarting Your Suspended SS Benefits
If you decide to suspend your social security benefits, you can elect to turn that back on at any time. For example, you retire at age 67 and turn on your social security benefit of $2,000 per month, but then your friend approaches you about a consulting gig that will pay you $40,000 only working 2 days a week. You no longer need your social security benefits to cover your expenses, so you contact your local social security office and request that they suspend your benefits. A year later, the consulting gig ends; you can go back to the social security office, and request that they resume your social security payments which have now increased by 8% and will now be $2,160 per month.
How Do You Suspend Your Social Security Benefits?
You can request a suspension by phone, in writing, or by visiting your local social security office.
Reasons To Consider Suspending Your Social Security Benefit
As financial planners, we work with clients to identify wealth accumulation strategies, some basic and some more advanced. In this section I’m going to share with you some of the situations where we have advised clients to suspend their social security benefits:
Income Not Needed: This one we already cover in the example but if a client finds that they don’t need their social security income to meet their expenses, stopping the benefit, and taking advantage of the 8% guaranteed increase in the benefit every year until age 70 is an attractive option. I’m not aware of any investment options at this time that offers a guaranteed 8% rate of return.
Increasing The Survivor Benefits: By suspending your social security benefit, if your social security benefit is higher than your spouse’s benefit, you are increasing the social security survivor benefit that would be available to your spouse if you pass away first. When one spouse passes away, only one social security payment continues, and it’s the higher of the two.
Reduce Taxable Income: Retirees are often surprised to find out that up to 85% of the social security benefits received could be taxed as ordinary income at the federal level and there are a handful of states that tax social security at the state level. If there is temporary income right now that will sunset, instead of your social security benefit being stacked on top of your other taxable income, making it subject to higher tax rates, it may be beneficial to suspend your social security benefit until a later date.
Roth Conversions: Roth conversions can be a fantastic long-term wealth accumulation strategy in retirement but what makes these conversions work, is after you have retired, most retirees are in a lower tax bracket which allows them to convert pre-tax retirement accounts to a Roth IRA, and realize those conversions at a low tax rate. However, as I just mentioned, social security is taxable income, by suspending your social security benefit, and removing that taxable income from the table, it can open up room for larger Roth conversions.
Reduce Future RMDs: For pre-tax IRAs and 401(k), once you reach either 73 or 75 depending on your date of birth, the IRS forces you to start taking taxable required minimum distributions (RMDs) from those retirement accounts. It’s not uncommon for retirees with pensions to retire, they turn on their pension payment and social security payments, and that is more than enough to meet their retirement income needs. However, often times these retirees also have pre-tax retirement accounts that they do not need to take withdraws from to supplement their income so the plan is to just let them continue to accumulate in value.
The problem becomes, if no distributions are taken from those accounts, the balances continue to grow, making the RMDs larger later on, which could make those distributions subject to higher tax rates. Instead, it may be a better strategy to suspend your social security benefits which would allow you to start taking distribution from your pre-tax retirement accounts now, in an effort to reduce the future RMD amounts.
Life Expectancy Protection: With everyone living longer, there is the risk that a retiree could outlive their personal retirement savings but social security payments last for the rest of your life. By suspending your social security benefit and receiving the 8% per year increase, your social security benefit will support a larger percentage of your annual expenses. Also, unlike IRA accounts, social security receives a COLA (cost of living adjustment) each year which increases your social security benefit for inflation. By delaying the benefit, the COLA is now being applied to a higher social security benefit.
Choosing Between Withdraw or Suspend
If you have already reached FRA and you turned on your social security benefit less than 12 months ago, you have the option to either “Suspend” your benefit or “Withdraw” your benefit.
If you suspend your benefit, you do not have to pay back any of the social security benefits that you already received, and your social security benefit will continue to accumulate at 8% per year until you elect to turn your social security back on.
If instead, you decide to withdraw your benefit, yes, you have to pay back any social security payments that you already received but there is one advantage. Since the withdrawal of benefits is a complete “do-over”, you received credit for the 8% per year increase all the way back to your start date. This is not the case with the suspend strategy. If a client has $20,000 in idle cash and they received $20,000 in social security benefits over the past 11 months, if they use their $20,000 to pay back social security, it’s like you are receiving an 8% return on that $20,000 because your social security will be 8% a year from your start date. Not a bad return on your idle cash.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Frequently Asked Questions (FAQs):
What is the difference between suspending and withdrawing Social Security benefits?
Suspending and withdrawing Social Security benefits are two distinct strategies. A suspension pauses future payments without repayment and is available only after reaching Full Retirement Age (FRA). A withdrawal, on the other hand, is a complete “do-over” available within 12 months of starting benefits and requires repaying all benefits received.
When can you withdraw your Social Security benefits?
You can withdraw your Social Security benefits within 12 months of first receiving them, regardless of your age. However, you must repay all benefits received—this includes your own payments, spousal or dependent benefits, and any withheld taxes or Medicare premiums. You may only use this option once in your lifetime.
When can you suspend your Social Security benefits?
You can voluntarily suspend your benefits after reaching your Full Retirement Age (currently 67 for those born in 1960 or later). During suspension, no repayments are required, and your benefits will grow by approximately 8% per year until age 70, when you can resume receiving a higher monthly benefit.
Why would someone choose to suspend their Social Security payments?
Common reasons include not needing the income immediately, wanting to increase future or survivor benefits, reducing taxable income, or using the pause to perform Roth conversions. Suspending benefits can also help manage future required minimum distributions (RMDs) and protect against longevity risk.
How do you request to suspend or withdraw your benefits?
To suspend your benefits, contact the Social Security Administration by phone, in writing, or in person. To withdraw your benefits, you must submit Form SSA-521 either by mail or in person at your local Social Security office. Once a withdrawal is approved, you have 60 days to change your mind.
What happens to your benefits when you resume after suspension?
When you restart benefits after a suspension, your monthly payment will include the 8% annual increase earned during the suspension period. Any future cost-of-living adjustments (COLAs) will then apply to this higher amount.
Which is better — suspending or withdrawing Social Security benefits?
It depends on your age and financial situation. If you’re within 12 months of starting benefits and can afford to repay the amount received, a withdrawal offers a full “reset” and restarts your benefit growth from your original start date. If you are past that window, suspension allows your benefits to grow without repayment until you choose to resume.
