The beauty of file and suspend

Apr 29, 2013 @ 12:00 am

Runtime: 4:17

Mary Beth Franklin explains how married couples can wring nearly $60K a year in income out of Social Security.

Video Transcript

When it comes to claiming social security benefits, married couples have the most flexibility. What they need to think about is them as an economic unit as a couple. While in most cases, it makes sense for most people to wait until at least their normal retirement age of 66 to claim full benefits. In some cases, for married couples, one of them might wanna claim sooner. When married couples decide when to claim benefit is gonna depend on their earnings record for both the husband and the wife and their age difference. For example, let say you've got a-- Ozzie and Harriet kind of couple, where the wife has little earnings on her own. She's gotta get the biggest benefit as a spouse. But in that case, she can't get a spousal benefit until her husband claims, but maybe your husband heard me talk about, you really should wait as long as possible up to age 70 to get a really big benefit. What he could do is exercise a strategy called "file and suspend", that means, he says to the social security administration when he reaches his normal retirement age of 66. I want to file and suspend, which means, I am triggering spousal benefits for my wife. But my own benefit is going to be suspended until up to age 70, when I can get the maximum amount. If he waits 'til age 70, his benefit will be worth 132 percent of what it would be in a-- just normal retirement age. So-- say he was eligible for $2,000 a month at age 66. If he waits until age 70 to claim, that benefits could be worth $2,640 a month, that's a big chunk of change. But sometimes both spouses have substantial earnings on their own right. So, let say, they're both 66 years old and one of them decides to retire and the other says no, I'm gonna wait to what's worth more. The one who retires collect his or her benefit and the other spouse if he or see is at least 66 years old, the normal retirement age, can say the social security, I want to file a restricted claim for spousal benefits only. That means, let's say my wife is collecting her benefit of $2,000 a month. I'm gonna wait 'til 70 but I'm saying, "Hey, I'm 66. Give me half of what she's getting." So I would get a thousand dollars a month as a spousal benefit while my own benefit continues to grow 8 percent a year until it's worth the maximum of my-- at age 70. And then I would switch my own benefit. And then sometimes you have what I like to call the "Power Couples", where both the husband and wife had life-long earning history and they both have some substantial earnings. If they're approximately the same age, they can engage in a combo strategy that's really valuable. Again, let's assumed a husband and a wife for each entitled to $2,000 a month in social security benefits at their normal retirement age of 66. But, they have other assets they can draw on in between. so they decide they wanna get really creative with their claiming strategies. One of them could say, I'm 66, I want to file and suspend. So my own benefit keeps growing up to 870, but I'm triggering benefits for my spouse. And then the spouse, who is also at least 66, says to social security. Now that I'm not in normal retirement age, I want to restrict my claim to spousal benefits only. In this case, she will get half of her husband's benefit and her own benefit would keep growing at 8 percent a year up until age 70. You have this couple at age 70, where they would both be collecting more than $2,600 a month. That works out to more than $63,000 a year in guaranteed cost of living adjusted income that they can't outlive. Financial advisers really need to look at social security as a crucial piece of retirement income puzzle. And if they can lock in that guaranteed social security benefit, it's like the most valuable annuity they could buy and then they can structure it the rest of their clients' retirement income strategies around that.


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