Halt Social Security While Working

Amid the economic crisis, many retirees are returning to the work force. And for some people already receiving Social Security benefits, a little-known provision in the federal retirement program can provide some much-needed assistance in shoring up retirement finances.

The key is to put your Social Security benefits on hold. As unpalatable as that may sound, the strategy -- officially known as "claim and suspend" -- will enable you to pocket a higher monthly Social Security check later, when you retire -- again.

Some might argue that it makes more sense for those earning a regular paycheck from an employer to save their Social Security -- by investing their benefits or stashing the money in a bank account.

But by asking Social Security to suspend your payments altogether, you can ultimately lock in a substantial monthly raise. For every year those entitled to Social Security defer tapping their benefits between the so-called full retirement age -- which is 66 for those born between 1943 and 1954 -- and age 70, the Social Security Administration increases their monthly benefit by 8%.

On top of that, Social Security recipients typically receive an annual cost-of-living adjustment. (That said, with consumer prices this year either flat or declining, beneficiaries in 2010 might not see an adjustment.)

Moreover, this strategy might produce a larger "survivor" benefit for your spouse if you die first.

The claim-and-suspend approach doesn't make sense for everyone, however. Those 70 or older have nothing to gain by suspending benefits since they don't qualify for the annual 8% adjustments, according to Andrew Eschtruth, a spokesman for the Center for Retirement Research at Boston College.

Also, only Social Security recipients who are at or beyond the full retirement age can use the claim-and-suspend strategy. (Learn more about full retirement ages at www.ssa.gov/retire2/agereduction.htm).

People who suspect they and their spouses may have relatively short life expectancies should think twice about putting Social Security on hold since they may never recoup their suspended benefits.

And what if you are retired but younger than full retirement age -- and are now considering a return to work? Here, you might run into Social Security's "earnings test."

For every $2 above $14,160 a recipient younger than 66 earns in 2009, his or her Social Security benefits are reduced by $1. The penalty changes in the year you will reach your full retirement age -- $1 in benefits will be deducted for each $3 earned above a different limit. Then it ends once you hit full retirement age.

The silver lining? For those who are penalized, the Social Security Administration increases their benefits at full retirement age by an amount designed to compensate them -- over their life expectancies -- for the benefits withheld earlier.

Write to Anne Tergesen at anne.tergesen@wsj.com