Q: If you are not at full retirement age, can you start receiving Social Security benefits, and then suspend them a few months later?
I'm 64 years old, and am facing being laid off from my job. I'm considering starting Social Security. If I start working full time again, say in 6 months, would I be able to suspend my Social Security payments? Also, can I draw Social Security and at the same time receive unemployment benefits? -- LD via email
A: You're not eligible to 'suspend' your Social Security benefit. But you can still follow the strategy you've described.
You must be at your full retirement age -- in your case, age 66 -- to suspend your benefit and earn delayed retirement credits.
But that doesn't mean you can't 'retire' at 64, and later return to work.
Let's assume you live in one of the 45 states that allow you to collect unemployment insurance and Social Security at the same time. (The exceptions are Illinois, Louisiana, South Dakota, Utah, and Virginia.)**
And let's say you lose your job, and file for both unemployment insurance and a reduced Social Security
benefit. At 64, your monthly Social Security payment will be about 20% less than if you'd filed for it at 66.
Six months later, you get another job and return to work until you're 66. Then you retire for good.
Here's what would happen:
Depending on your salary at the new job, the Social Security Administration would start to withhold some or all of your monthly benefit. For example, in 2009 and 2010, you forfeit $1 of benefit for each $2 you earn above $14,160.
If your salary is big enough, you might forfeit your entire monthly Social Security check.
But this loss is temporary.
In fact, when you stop working again at 66, your Social Security benefit will be bigger than it was at 64. The reason: It will be recalculated to take into account whatever amount you forfeited as a result of the annual earnings cap.
It will also reflect any additional benefit that you may have earned by working at that second job.
And what if you like the new job so much that you decide to keep working even after turning 66? In that case, at 66 you'll once again begin receiving your full Social Security payment -- adjusted to make up for whatever amount you forfeited earlier -- because after you reach full retirement age, you're no longer subject to an annual earnings cap.
**The most recent state to repeal its offset law was Colorado, late last year.
Although South Dakota has also repealed its offset law, the repeal was contingent on the state's unemployment trust fund reaching $30 million. The trust fund never got close to that amount. So South Dakota still reduces a claimant's unemployment benefit by 50 cents for every dollar of Social Security he or she receive, says Rick McHugh, a staff attorney at the National Employment Law Project. And although Virginia repealed its 50% offset law in 2006 -- a repeal also triggered by the balance of the state's unemployment trust fund -- the law was revived after the trust fund balance fell due to the current recession.
Please send your questions to Lynn@LynnBrennersFamilyFinance.com. I'm sorry I can't respond personally to every email. Questions are only addressed online.