Social Security Benefits: File and Suspend

When it comes to the decision of when to file for Social Security benefits, many people make the same mistake. They file for partial benefits at age 62, as soon as they qualify to begin collecting. In fact, people of average or above average health would benefit by delaying Social Security benefits until age 66 or even waiting until they reach age 70. That’s because your annual benefit grows at an approximate rate of 8% a year between ages 62 and 70 – risk free. Try getting that return anywhere else.

There are, however, several strategies couples can use to maximize their Social Security benefits. One strategy is known as “file and suspend.” If you and your spouse can afford to delay taking Social Security until you both reach age 70, the File and Suspend strategy can help boost your lifetime income by more than 20%. For a high income couple, this could mean an additional $150,000 in benefits compared to what they would receive by both claiming at age 62.

Here’s a hypothetical example of how this strategy might play out for a married couple, James and Susan. They use the file and suspend strategy when James is 66 (his full retirement age) and Susan is 62. Both are eligible to collect Social Security benefits. The higher earning spouse with a monthly benefit of $1,500 at age 66, James files for Social Security and then immediately suspends his benefits. Susan then claims a “spousal benefit” under James’ account, receiving half of what his benefit would have been: $750 a month. While Susan collects the spousal benefit from James’ suspended account, their individual accounts continue to grow by 8% a year. Four years later, when John reaches age 70 and by law his account stops growing, he re-starts his Benefits. Mary must therefore stop taking the spousal benefit and, at age 66, has the choice of filing for her own benefits or waiting so they could continue to grow until she reaches age 70.

By adding on four additional years of growth, James collects 132% of the amount that he would have collected at age 66. In addition, Mary and John received $36,000 from the spousal benefits option while allowing their monthly benefits to continue to grow.

Keep in mind that Full Retirement Age is 66 for those born between 1946 and 1954, and 67 for anyone born in 1960 or after. When to file for Social Security is a complicated question, so check with your advisor before you make your claim.

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