Singles can file and suspend Social Security benefits

I have received emails from several financial advisers recently asking about the availability of the Social Security file-and-suspend claiming strategy for single clients.

“I have a single, never-married client, working full time who elected to file and suspend her Social Security benefits at her full retirement age,” wrote Shannon Hannon, a financial adviser with LPL Financial in West Bloomfield, Mich.

“The client received a phone call from the Social Security office saying since she isn’t married, she can’t file and suspend her benefits,” Ms. Hannon said in an e-mail. “I thought any earner is eligible to file and suspend, without regard to marital status.”

Ms. Hannon is correct. The ability to file and suspend benefits depends on age, not marital status.

But just in case, I checked with the Social Security Administration. “Any primary retirement insurance beneficiary who has reached full retirement age may voluntarily ask that we suspend his or her benefits to earn delayed retirement credits,” SSA spokesman Ben Stump confirmed.

“Therefore, the individual in the case scenario provided should be allowed to file and suspend her benefits,” Mr. Stump said.

Delayed retirement credits are worth 8% for every year you postpone collecting Social Security benefits beyond the full retirement age, up to age 70. So someone whose full retirement age is 66 could boost their benefits by 32% (4 x 8%) if they waited until age 70 to collect benefits. Someone who was born in 1960 or later and whose full retirement age is 67 could increase their retirement benefits by up to 24% (3 x 8%).

Although it is more common for married couples to use the file-and-suspend strategy, it is a viable option for singles, too.

For example, someone who is at least 66 years old may want to file and suspend at 66 in order to trigger dependent benefits for a spouse or minor dependent child while his own retirement benefit grows to the maximum amount at age 70. A larger retirement benefit also translates into a larger survivor benefit for a surviving spouse or minor child once the worker dies.

But for single people especially, the file-and-suspend strategy can be used as an insurance policy.

The premise is to file for benefits at full retirement age, currently 66, and then immediately suspend benefits with the intention of earning delayed retirement credits worth 8% per year up until age 70.

But anyone who files and suspends benefits can change their mind at any time up to age 70 and request a lump-sum payout back to the date of the original suspension. Of course, if they did, they would forfeit the delayed retirement credits earned during that period.

Why would you want to file and suspend and then request a lump sum?

Let’s say you’re single and had expected to live a long time, but at 68 you receive a terminal diagnosis. Longevity is suddenly the least of your worries and a lump sum payout might come in handy.

Because you filed and suspended at your full retirement age, you could request a lump sum payout for the past two years of suspended benefits. Going forward, you would collect Social Security benefits based on your age when you suspended benefits, not larger benefits based on your current, older age.

Married beneficiaries could also request a lump sum payout of suspended benefits at any time up to age 70, but it may not be in their best interest to do so. If a higher-earning spouse who had suspended his or her retirement benefits received a terminal medical diagnosis, he or she may be more concerned about leaving the largest possible survivor benefits for the remaining spouse and probably would choose the delayed retirement credits over a lump sum payout.

A lump sum payout of suspended benefits does not have to be an all-or-nothing deal. You can request a lump sum for the entire suspension period or for any portion of that period.

However, only you can collect a lump sum payout. If you die before collecting benefits, your widow or widower would be eligible for survivor benefits based on what you would have received at time of death, but not a lump sum payout of uncollected benefits. And if you are single, there are no survivor benefits.

(Questions about Social Security? Find the answers in my ebook.)