Seniors, Boomers Back at Work May Find Gold in
Social Security's ‘Claim and Suspend’
Center for Retirement Research at Boston College
issues report on how to increase Social Security in future years
Index
of labor force participation rates for men aged 55 and older, by
months into recession. Source: Authors' calculations based on U.S. Bureau of
Labor Statistics (2009)
June 10, 2009 - Since the beginning of the economic
collapse, more aging baby boomers and senior citizens have been
reentering the workforce in an attempt to shore up their retirement
savings. This uncertainty about a secure retirement increases the
value of the consistent income provided by Social Security.
One strategy to increase Social Security in future years is called
“Claim and Suspend,” but it may not be familiar to many seniors,
according to the Center for Retirement Research at Boston College.
“With the current financial crisis wreaking havoc
on retirement savings, many older people have had to reassess their
retirement plans – they may decide to work longer or, if already
retired, to re-enter the workforce,” according to the report prepared by
Alicia H. Munnell, Director of the CRR and the Peter F. Drucker
Professor of Management Sciences at Boston College’s Carroll School of
Management, Alex Golub-Sass, CRR research associate, and Nadia
Karamcheva, CRR graduate research assistant.
“For those currently in the labor force, working
longer increases monthly Social Security benefits. Social Security
benefits are actuarially adjusted so that, on average, lifetime benefits
remain the same whether a person retires at any age between 62 and 70,”
the authors state in the introduction of the nine-page report.
“So the later a person retires, the higher the
monthly benefit.
“For those thinking of re-entering the workforce,
Social Security provides for higher benefits later in exchange for
withholding benefits while they are employed.
“For those under the Full Retirement Age (currently
66), this adjustment is accomplished automatically through the annual
retirement earnings test. For those over the Full Retirement Age, the
adjustment can be made through the voluntary option of “claim and
suspend.”
The “claim and suspend” strategy, they say, also
enhances the claiming options of one-earner couples.
As an example the authors say, “A husband who
reaches the Full Retirement Age may elect to claim and immediately
suspend benefits, allowing his wife to receive a spousal benefit based
on his earnings record. The husband is then free to continue working
and receive delayed retirement credits, which increases not only his
monthly benefit but also his wife’s survivor benefit.
“By using “claim and suspend” in this way, the
couple can enhance the value of their lifetime benefits.”
This strategy provided by Social Security has taken
on more importance during this recession, which has found more older men
returning to the workforce than in any past recession.
Social Security has two provisions according to the
CRR researchers that allow workers to enhance future benefits by having
benefits withheld while they work.
The Annual Retirement Earnings Test
“Those under the Full Retirement Age will find
their Social Security benefits automatically reduced when they go back
to work. In 2009, for each dollar of earnings in excess of $14,160,
benefits are reduced by $1 for each $2 earned. Many economic studies
have shown that this test discourages work because most beneficiaries
are unaware that the reduction in benefits while working triggers an
increase in benefits later.
In fact, benefits foregone while working are in
effect rolled forward to increase people’s Social Security benefits
after they reach the Full Retirement Age, the report says.
“An example might help. Assume that the person
started to collect Social Security at age 62, but continued to work and
only retired for good at 63. If that person earned so much that half his
benefits were withheld, at the Full Retirement Age his benefit would be
raised to what it would have been if he had claimed at age 62 and a
half.
On average, they say, the benefit a retiree
receives is equal to the amount he would have received if the annual
earnings test were never applied.
Claim and Suspend
“Those over the Full Retirement Age who go back to
work have a much more flexible option. As a result of the Senior
Citizens’ Freedom to Work Act of 2000, they are no longer subject to the
annual earnings test but rather can voluntarily “claim and suspend,” the
report says.
“That is, they can either work and receive full
benefits or voluntarily suspend payments. If they choose to suspend,
they forfeit current benefits but earn delayed retirement credits (DRCs)
for a permanent increase in their future monthly benefits. This strategy
is very helpful to those who earn enough to support themselves, because
it allows them to increase the amount of future monthly Social Security
benefits – a special kind of income that is fully inflation-adjusted and
payable for life.
This report discusses the “claim and suspend”
strategy. The first section outlines the provision and its application
for individuals re-entering the workforce. The second section describes
how this provision applies to the claiming behavior of married couples
and uses data from the Health and Retirement Study to calculate the cost
to Social Security. The final section concludes that the gains of “claim
and suspend” to those who must work longer could be quite significant
in terms of higher monthly benefits for life and that the potential cost
is modest (probably less than $1 billion per year).
>> For information about other unusual
claiming strategies, click
here
About the Center
The Center for Retirement Research at Boston
College was established in 1998 through a grant from the Social Security
Administration. The Center’s mission is to produce first-class research
and forge a strong link between the academic community and decision
makers in the public and private sectors around an issue of critical
importance to the nation’s future. To achieve this mission, the Center
sponsors a wide variety of research projects, transmits new findings to
a broad audience, trains new scholars, and broadens access to valuable
data sources. Since its inception, the Center has established a
reputation as an authoritative source of information on all major
aspects of the retirement income debate.
Seniors who
do not receive $250 payments by June 4
should contact Social Security; those in care facilities receiving
Medicaid are not included