One of the biggest challenges in determining when to claim SS benefits is determining which strategy would maximize the monthly inflow.  However many who claim SS benefits do so not because of maximization efforts but because the cash is needed immediately.

One strategy that seemingly reconciled the competing ends was benefit repayment.  Recipients would receive cash, repay at a later date and then restart benefits.  Doing so had the effect of recalculating benefits as if never previously received.  Such “aging out” of the discount was tantamount to an 8%/yr ROR.  Not bad.

Unfortunately the rules around this strategy were changed making it unavailable to many benefit recipients.  Until December 2010 it was possible to receive what amounted to an interest-free loan by collecting reduced benefits as early as age 62 and at any point up to age 70 repay cumulative benefits received.  Benefits would be restarted at the higher rate calculated at a recipient’s current age.

Uncle Sam put a stop to this.  Under new rules a recipient may repay benefits only once in a lifetime and must do so within the first twelve months of initially claiming benefits.

A number of SS recipients are now in a bind.  Many opted for the file, repay and restart strategy only to have the rule change work against them.  They’re stuck receiving reduced benefits.

Is there a fix?  Sort of.  Benefit recipients may not be able to repay but they can opt into another little-known strategy – suspension.  Under the suspension strategy recipients who have reached their Normal Retirement Age (“NRA”) may voluntarily suspend (but not repay) the monthly cash inflow.  When the suspension is lifted and benefits begin flowing once again the delayed retirement credits are valued at 8% for each year of postponement.

Here’s an example:

Assume a Normal Retirement Age of 66 and a benefit of $2,000/mo.  Opting to receive benefits at age 62 is a 25% reduction bringing the inflow down to $1,500/mo.  If age 63 comes and goes the window to repay and restart closes so waiting until age 66 is the next option.  At this NRA benefits could be voluntarily suspended until age 70.  Doing so restores benefits to 99% of the primary $2,000/mo (75% reduced benefit x 1.32% delayed retirement credits from age 66-70).

The good news is the suspension strategy almost fully restores the initial unreduced benefit.  The downside is giving up benefits during the age 66-70 window.  The decision highlights an obvious but important point – collecting benefits is but one piece of a larger puzzle and should be made in the context of a holistic plan.