One strategy that we often implement for our married clients in order to maximize lifetime benefits is the “file and suspend” strategy. Single individuals don’t need to feel left out though, since applying this strategy might be in their own best interest as well.
As a refresher, the file and suspend strategy for married couples permits one spouse to file for benefits after reaching full retirement age, then immediately suspend those benefits. This allows the other partner to file a “restricted application” for spousal benefits, leaving their own benefit to grow until age 70.
File and Suspend Benifits
Besides triggering the spousal benefit, which obviously doesn’t help a single person, the file and suspend strategy allows an applicant to request a lump sum payment of suspended benefits back to the date of suspension. This might come in handy for people who have changed their minds or have a change in health that impacts their life expectancy.
For example, Alex plans to work until age 70 and, consequently, has determined that it is in his best interest to delay receiving Social Security benefits until that time, accruing an 8% delayed retirement credit for each year he waits. He could file and suspend at his full retirement age of 66. By doing so, he will still receive the delayed retirement credit as long as he waits to start drawing benefits. If he changes his mind at age 68, for example, he could request a lump sum payment from the Social Security Administration for 2 years’ worth of benefits going back to age 66. Regular monthly payments would begin from that point going forward as if the applicant had started back at full retirement age.
Let’s say Alex unfortunately finds out he has cancer and is given a life expectancy of only 12 months. He is no longer concerned with longevity and the future income stream from Social Security. On the other hand, getting a lump sum of his suspended benefits would be a bigger concern and could assist him with current medical expenses. He’d also be no worse off financially than had he taken the benefits at age 66 in the first place.
If you don’t file and suspend, a person is generally limited to only a 6 month retroactive lump sum benefit if applying for the first time. Since filing and suspending serves as the first application, a person extends that 6 months to as many months between full retirement age and the time they request the lump sum of their suspended benefits.
Although single individuals can’t benefit from coordinating Social Security benefits with a spouse, utilizing the file and suspend strategy can still provide them with an advantage and flexibility should their circumstances change.
You can learn more by reading about our Social Security Planning services or our Social Security FAQs section.