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Suspending your benefits before they even start

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POSTED July 13, 2012 10:12 p.m.

Q. I am about to turn 66 years old. I was planning to wait until age 70 to file for my Social Security benefits because I wanted to get the delayed retirement bonus you mention so often in your column. But I found an article on the web that encourages people like me to file at age 66 and then immediately suspend my benefits. That way, if I change my mind before age 70, I can go back and get retroactive benefits until age 66. What do you know about this?

A. What I know is that you still can teach an old dog new tricks. I read the online article you referenced at MSN Money's website. It provided a Social Security benefit tip that I had never thought of. I initially felt badly about this because I was sure that after 40 years in the Social Security business, there was little, if anything, I didn't know about the program. But my guilt feelings were assuaged a bit when I contacted a colleague who still works for the agency — one of the brightest Social Security scholars I know — and he wasn't aware of this practice either! In fact, the Social Security Administration has just issued a memorandum to all its field offices making them aware of this little-known procedure.

Let me clarify that. The procedure isn't new or unknown. It's called "file and suspend." I've discussed this many times in past columns. You file for your Social Security benefits at age 66, and then immediately suspend those benefits. But the online article points out a clever new reason to implement this tactic.

Many of my readers may legitimately wonder why in the world a person would want to file for Social Security benefits (at age 66 or later) and then immediately suspend those benefits.

In past columns, I've cited one big reason for doing so — and that is so your spouse may claim Social Security benefits on your record while you delay benefits until age 70. Here is an example.

Sid is 66 and still working. His projected Social Security benefit is $2,200 per month. His wife, Nancy, is 62. She was a stay-at-home mom who never worked and paid Social Security taxes. Sid does not want to take Social Security now because he plans to wait until age 70 to have the delayed retirement credits (a 32 percent bonus for holding off on retirement collections until 70) added to his Social Security payment. However, the rules say Nancy cannot collect spousal benefits from Sid's record until he has signed up for Social Security himself.

But the "file and suspend" rule allows Sid to apply for Social Security retirement at age 66. Then Nancy would file for wife's benefits on Sid's record. At age 62, she'd be due a reduced rate of about 30 percent of Sid's benefit — or $660 per month.

Next, Sid asks SSA to suspend his benefits. They would be stopped. But Nancy's would continue. At age 70, Sid would request SSA to "unsuspend" his own Social Security benefits. At that point, he would begin to collect about $2,900 per month in retirement benefits, including the delayed retirement credits.

Unfortunately, the rules do not allow Nancy to share in those extra benefits. Her rate would remain at the $660 level. However, if Sid dies before she does, Nancy would get $2,900 in monthly widow's benefits because a widow is allowed to get her deceased husband's full benefit with the delayed retirement credits.

But here is the newly cited reason you should consider filing for Social Security at age 66 and then immediately suspend those benefits: to protect your eligibility for back benefits if your circumstances change before you reach age 70. For example, if serious health issues afflict you in your late 60s, you may decide it is no longer worth it to delay your Social Security until age 70. You could then "unsuspend" your benefits and receive back pay benefits to age 66. (Of course, you would no longer be due the delayed retirement bonus.) Had you not filed for your Social Security benefits (and then suspended them) at age 66, you would not have been able to claim the retroactive benefits once you changed your mind. And under this "file and suspend" plan, if you remain healthy or your circumstances don't otherwise change, you simply "unsuspend" your benefits at age 70, at which point you will be credited with the full delayed retirement bonus.

So almost everyone who plans to wait until 70 to collect Social Security benefits should consider this "file and suspend" strategy at age 66. I can think of only one situation where you wouldn't want to "file and suspend" at age 66. And that is if you were planning to collect spousal benefits between age 66 and 70. Here is a quick example of that strategy.

Jack is 66 and is due $2,400 per month from Social Security. His wife, Jill, also is 66 and she is due $2,000 per month in her own Social Security. Jill applies for her Social Security benefits. And instead of filing for his own Social Security, Jack applies for husband's benefits on Jill's Social Security record. He would get $1,000 per month in husband's benefits. (The couple would get total benefits of $3,000 per month.) Then at age 70, Jack would file for his own Social Security. At that point, he'd lose his $1,000 monthly spousal benefit, but would begin to receive almost $3,000 per month in Social Security retirement benefits, including "delayed retirement credits" of eight percent per year.

Jack wouldn't want to employ the "file and suspend" strategy at age 66 because if he suspends his own benefits, he would also be required to suspend his husband's benefits on Jill's record.

I know this is complicated stuff. I've revised my fact sheet, "When To Take Your Social Security Benefits," to reflect the new information in this column. You can request a digital copy by emailing me at thomas.margenau@comcast.net.

 

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