What are the benefits of voluntarily suspending your Social Security payments?

For retirees who have already started collecting Social Security benefits, the option to voluntarily suspend payments may seem surprising. However, for those who have reached Full Retirement Age (FRA) but are not yet 70, suspending benefits can lead to significant financial advantages.

This strategy is especially beneficial for individuals who can afford to delay their payments in exchange for higher monthly benefits later in life.

Understanding the implications of voluntary suspension can help retirees make informed decisions about their long-term financial security. By strategically delaying benefits, individuals can maximize their payouts, improve financial stability, and enhance survivor benefits for a spouse.

How voluntary suspension increases Social Security payments

One of the primary benefits of suspending Social Security payments is the opportunity to earn Delayed Retirement Credits (DRCs). For every month that payments are suspended, retirees accrue an additional 0.67 percent per month, which adds up to an 8 percent increase per year.

For example, someone who suspends benefits at age 67 and resumes them at 70 would see a 24 percent increase in their monthly payments. This adjustment results in higher lifetime payouts, which can be crucial for covering healthcare costs, inflation, and daily living expenses in later years.

A higher benefit amount can also make a significant difference for surviving spouses, who may inherit a larger Social Security benefit if the higher-earning spouse delayed their payments. This is particularly valuable for married couples where one spouse depends on the other’s Social Security income.

For individuals who have alternative sources of income, such as pensions, investments, or part-time work, delaying Social Security benefits can be a smart financial strategy. Instead of relying on Social Security immediately, retirees can use their other income streams while allowing their benefits to grow.

Suspending payments can also be beneficial for tax planning. Social Security benefits can be subject to federal income tax if total income exceeds a certain threshold. By delaying benefits, retirees may be able to manage their taxable income more effectively and reduce the amount of their Social Security that is subject to taxation.

Unlike the withdrawal of application process, which requires a full repayment of benefits already received, voluntary suspension does not require repayment. Instead, payments are simply paused and automatically restart at a higher rate once the retiree chooses to resume them or reaches age 70.