Mary Beth Franklin

Retirement 2.0blog

Mary Beth Franklin - also known as the 'client whisperer' - on what your clients really want when they talk about retirement.

File-and-suspend strategy works for singles, too

Social Security strategy normally reserved for couples allows unmarried to hedge their bets

Dec 16, 2013 @ 12:16 pm

By Mary Beth Franklin

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My recent blog about using the file-and-suspend strategy as a hedging strategy for claiming Social Security benefits has generated a lot of comments and questions.

In that blog on Dec. 2, I explained how the file-and-suspend strategy, which is normally used to trigger spousal benefits while the worker defers his or her own retirement benefit until it is worth more later, can serve as an insurance policy. If you change your mind and decide not to wait to collect your benefits, you can request a lump sum payment of your suspended benefits back to the date of suspension.

As most of my readers know, you must wait until your full retirement age — currently 66 — to file and suspend your benefits. During the suspension period, the worker accrues delayed retirement credits worth 8% per year up to 70.

In many cases, that larger retirement benefit also will translate into a bigger survivor benefit for the remaining spouse. Survivor benefits are worth 100% of the deceased worker's benefit, including any delayed retirement credits.

Generally, a person who is beyond full retirement age when he or she first claims Social Security benefits may be entitled to up to six months of retroactive benefits paid in a lump sum. Lump sum payments can only be paid for months when the beneficiary was full retirement age or older.

But the six-month limit does not apply when someone files and suspends, Social Security spokeswoman Kia Anderson explained in a recent e-mail.

“There is a difference between requesting reinstatement of voluntarily suspended benefits and filing for retroactive retirement benefits,” Ms. Anderson wrote.

If you file and suspend with the intention of collecting a larger benefit later, you can change your mind and collect a lump sum retroactively back to the point of your initial filing — even if that is longer than six months, Ms. Anderson said.

In this case, you are not requesting a retroactive payment, she explained. As you have already filed for benefits, you are merely asking Social Security to reinstate the retirement benefit that you voluntarily suspended.

The file-and-suspend strategy is certainly a great way for married couples to collect some Social Security benefits now and ensure that the higher earner collects an even larger benefit later.

But once I learned that anyone who files and suspends can later request a lump sum payment in lieu of higher monthly benefits, it seems that this could be an excellent strategy for some single clients, too.

Several readers agree.

“It seems to me that you are saying that as a general rule, anyone who wants to postpone their benefit should file and suspend payments at their full retirement age if only to avoid the six-month retroactive rule,” adviser Tom Yaeger wrote to me in a recent e-mail.

“This sounds a little like a four-year term life insurance policy that can be used in case you fall ill or into some financial difficulty during the waiting period,” Mr. Yaeger added. “For single folks, especially, they would have the option to take another look at their decision to delay to 70. “

I couldn't have said it better myself.

Until recently, I did not think single individuals could benefit from creative claiming strategies, as they didn't have the option of coordinating their Social Security claiming decision with a spouse, nor were they eligible to either leave or receive survivor benefits.

But for those unmarried individuals who plan to delay collecting Social Security until an older age as a way to lock in a bigger monthly benefit later, filing and suspending at 66 allows them to hedge their bets in case their situation changes.

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