[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
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!