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Understanding Social Security Benefits and When to Withdraw Your Claim

If you have started receiving Social Security benefits within the past 12 months, you have the option to withdraw your claim and delay collecting benefits. This requires repaying any benefits received so far. For those at full retirement age or older (66 or 67) but not yet 70, you can also suspend your benefits and restart them later. In both scenarios, your benefit amount will increase incrementally for each month you delay receiving a check.

Social Security Benefit Basics

How do Social Security benefits work? Here’s a brief overview:

• You can start collecting benefits at age 62, but the amount will be reduced. At 62, your monthly benefit would be 30% less than if you waited until full retirement age (67 for those born in 1960 or later).
• Your monthly benefit increases by 0.67% for every month you delay collecting benefits, equating to an 8% increase per year. For example, if your benefit at age 62 is $2,000, it would be approximately $2,160 if you start at age 63.
• You receive your full benefit if you wait until full retirement age, currently between 66 and 67.
• After age 70, your benefit does not increase further.

How Are Social Security Benefits Calculated?

To qualify for retirement benefits, you must have worked and paid Social Security taxes for at least 10 years. Your benefits are calculated based on:

• Your earnings: Social Security uses your top 35 years of earnings.
• Your age: The age at which you retire affects your benefit amount.
• Wage indexing: Adjustments are made for average wages over your working life.
• Cost of living: Benefits are adjusted annually to reflect inflation.
• Retirement income: Social Security deducts $1 for every $2 earned over $21,240 for 2023 if you’re under full retirement age, or $1 for every $3 earned over $56,520 for 2023 if you’re at or above full retirement age.

What Will Your Monthly Payment Be?

While it’s challenging to predict your exact benefits, the Social Security Administration offers three ways to get a personalized estimate:

• Use the Social Security Quick Calculator for an estimate based on your tax returns.
• Download your Social Security Statement for detailed information on your lifetime earnings and eligibility.
• Set up a Social Security account page for interactive tools to estimate your benefits at different ages and for spousal or survivor benefits.

How Can I Withdraw a Social Security Claim?

You can cancel or withdraw your application within 12 months of approval by following these steps:

• Download Form 521: Request for Withdrawal of Application.
• Complete and sign the form.
• Mail or fax the completed form to your local Social Security office.

You’ll need to repay any benefits received, including money withheld for Medicare premiums, taxes, or garnishments. Canceling your benefits will also cancel benefits for your spouse or dependents. You have 60 days after approval to reinstate your application, and you can only withdraw your claim once. Reapply for benefits when you’re ready to resume payments.

How to Suspend Benefits if You Can’t Cancel Your Claim

If you’re at or above full retirement age but younger than 70, you can temporarily suspend your benefits by contacting the Social Security Administration or visiting your local office. Your benefits will be paused until you request to resume payments or automatically when you turn 70. Your monthly benefits will increase as if you had postponed receiving them while suspended.

When Does It Make Sense to Cancel Your Social Security Claim?

Here are a few scenarios where rethinking your Social Security claim might be beneficial:

• You Need to Recalculate: If your current benefits aren’t sufficient to cover living expenses, you might want to work a few more years to increase your monthly benefits and retirement savings.
• You’re Going Back to Work: If you have a job offer or business opportunity, or need to cover urgent family expenses, returning to work might be a good option.
• You Can Live on Savings: If you can cover expenses from savings, you might want to delay Social Security benefits to avoid a retirement tax bomb. Consult with a tax or financial advisor for personalized advice.

Some Considerations Before Un-Retiring

Think through these questions before withdrawing your Social Security claim:

• How much will your benefits increase? Calculate the trade-off between forfeiting current benefits and the potential increase in future benefits.
• Do you have enough saved in retirement? If your 401(k) and IRA assets are insufficient, consider going back to work to save more.
• Do you want to return to work? Consider whether the structure and social connection of work are appealing.
• How long can you stay un-retired? Benefits max out at age 70, and required minimum distributions start around age 73. Ensure you can pause long enough to make a financial difference.

The Bottom Line

Withdrawing your Social Security claim can increase your monthly benefit in the future, but consider whether it makes financial sense now. You may want to delay benefits if you have other income sources or work you’d like to continue. Keeping a keen eye on your finances is crucial for long-term financial health.

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