[Update: November 2015- Congress made changes in SS law that basically eliminates the File and Suspend and Restricted Application strategies for anyone now under 62. More details can be found here.]
“File and Suspend” is a term you ought to know. This refers to a technique that smart married couples often use to maximize their Social Security benefits. It turns out that married couples almost never want to take their Social Security benefits at the same time. If the lower earning spouse is entitled to a benefit, she (sorry, but it is almost always a she given our cultural norms) would want to take it as soon as possible, generally age 62. Then the higher earning spouse “files and suspends” at his full retirement age (67 for me). At this point, the lower earning spouse can take 1/2 of the higher earning spouse's retirement benefit of it is more than her benefit, or just continue her benefit. At age 70, the higher earner takes his now much larger benefit.
Another technique that works for some is the “Restricted Application” or “Free Spousal” technique. In this situation, the higher earning spouse files and suspends at full retirement age, and the lower earning spouse begins taking 1/2 of the higher earning spouse's benefit. Meanwhile, she allows her benefit to continue to grow and takes it at age 70. This can work really well for couples with a more equal earnings record, but works poorly if they have significantly different ages. You really need to run the numbers both ways to see which is smarter for you.
This discussion, of course, assumes that you're trying to maximize your Social Security monthly payment and the hedge against inflation and longevity that a maximized monthly payment provides. If your health is poor or your financial management has been such that you need the cash flow before or even at your full retirement age, then you don't have the option to use these more advanced Social Security claiming techniques.
Hedging Your Bets on File and Suspend
Few people realize, however, that single folks ought to File and Suspend too. File and Suspend is a great technique for a single retiree who plans to wait until 70 to take benefits. The reason why is that you can change your mind about the suspend part once you file. If you wait until you're 70 to file, then you CANNOT change your mind. At best, you can go back and get the last 6 months of benefits. If, however, you filed and suspended at 67, then became ill at 69 such that you think it is unlikely that you'll live to your life expectancy, or if you simply need a lump sum of money, you can simply go back and get all those benefits you suspended. If your benefit were $2000 per month, that could be a $50K lump sum. Future benefits would be calculated as if you'd started receiving them at age 67 of course. If you remain healthy to age 70, and have no need for a lump sum, you can simply take your benefit at 70 like you planned. In essence, it gives you a little “insurance”, a bit of a “hedge” against bad things happening to your health and finances.
Have you considered File and Suspend or the Restricted Application techniques? What did you do (or do you plan to do) and why? Comment below!
If the wife is 62 and draws on husbands “suspended” benefit, she will get less than 1/2 of the husbands benefit. She will get the”full” 50% of his benefit if she starts to draw from spouses benefit when she is FRA. That is my understanding.
Agree. My understanding also is that if the lower earner is <FRA, the amount due them is clipped. I both spoke to SS(phone) and use the SS Solutions program to help guide me. Highly recommend the latter.
I work with a nurse who has reached FRA, and I told her about this today. It led to a major discussion about ss benefits. I printed out some stuff for her about divorce and social security, since I know she fits that description.
Behold, she is going to file for her “share” of her ex-husband’s benefit tomorrow (he is also FRA). We think she will get about $400 per month (of which 85% will be taxable, but who cares; this is money she wasn’t counting on and didn’t even know she was “entitled” to. Besides, she is probably only at 28% marginal rate anyway. So 72% of 400 per month is still substantial for her)
Have my fingers crossed for her, that I haven’t got her hopes up only to find some technicality prevents the windfall. (they were married 14 years, which is certainly longer than the 10 years required)
If a single person’s motive for filing and suspending is as you described above, “Hedging Your Bets”, then why would one not do so at age 62 since the uncertainty being hedged could happen at any time? Also, if a single person files and suspends at age 62, what determines whether at age 64, or 66, or 68, etc., for example, they get a lump sum for the past or just begin getting monthly payments? Is it driven by what their full retirement age happens to be? Or, do they get the lump sum for any age up until age 20?
Meant to end my question by saying age 70, not age 20.