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2 Social Security maximizing strategies often confused

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POSTED February 15, 2013 9:22 p.m.

Every single day, I get dozens of emails from readers asking me if they should "file and suspend" their Social Security benefits — many times without really knowing what they are asking.

I will try yet another time to explain these rules that generally help couples that are each approaching retirement age at about the same time to get more benefits in the long run. But first, a bit of background:

If you take reduced Social Security benefits at any age before 66, the law says you must file for any and all benefits for which you are eligible. For example, if you are a woman who has worked and paid into Social Security, you cannot file for reduced wife's benefits on your husband's record at 62, and then at 66, switch to full benefits on your own account. (Please note that widows are an exception. They can make the switch at any age.)

But everything changes if you wait until age 66. At that age, you can "restrict" your Social Security application to one benefit or another, and put off taking the other benefit until a later date, usually age 70.

So that same woman we were talking about two paragraphs back could file for Social Security benefits at age 66, restricting her application to spousal benefits only, and continue to receive those dependent's benefits until age 70, at which point she could switch to her own retirement rate, which would come with a 32 percent delayed retirement bonus.

But many people who should be employing this restricted application policy mistakenly claim they want to "file and suspend" their benefits. This is a completely separate Social Security maximizing strategy. Simply put, it means you are allowed to file for Social Security benefits at age 66 and then immediately suspend those benefits. There are two reasons why you might want to consider doing this.

The first reason really has nothing to do with a spouse. It would apply to someone who simply wanted to delay filing for his or her Social Security benefits until age 70 to get the 32 percent bonus described above. You could still file for your benefits at age 66, and then immediately suspend those benefits. Why would you want to do this? 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.

The second reason you might want to "file and suspend" at age 66 involves a spouse — and this is where all the confusion creeps in. It can apply if you have a spouse who has not worked, and thus has no Social Security benefits on his or her own record. Or as is more often the case, you have a spouse who has worked and is due a smaller benefit on his or her own account.

The simplest example involves the former. Bill is turning 66 but wants to keep working until 70 to get his full Social Security benefit and the 32 percent bonus. His wife Mary is 62 and hasn't worked enough to get her own benefit. Bill can file for his Social Security at age 66 so Mary can start getting reduced wife's benefits on his record. Then Bill suspends his benefits, but Mary continues to receive her spousal check. At 70, Bill "unsuspends" his Social Security and starts getting full benefits and the bonus. Mary continues to receive her reduced spousal rate.

But things get more confusing if we have a spouse who has worked and has her own Social Security. Let's follow an example.

Joe is 66 and is due $2,400 per month from Social Security. His wife, Jill, is 62. Her full retirement rate on her own record is $1,800, but she is due $1,350 in reduced benefits at 62. In this case, Joe can do one of two things. He can "file and suspend" or he can restrict his application. (Please note that you can't do both: You can choose one maximizing strategy or the other!)

If he files and suspends, that means he would file for his own Social Security at 66 and immediately suspend those benefits until age 70, at which point he would "unsuspend" and collect his full benefit plus the 32 percent bonus. Jill is out of the picture in this "file and suspend" scenario. She would simply start getting her own reduced retirement benefits at 62.

Joe's better option in this case would be to employ the restricted application policy. This means that at age 66, Joe would file for Social Security but restrict his application to husband's benefits only (assuming Jill had filed at age 62.). Joe would collect a husband's benefit on Jill's record (50 percent of her age 66 rate) until age 70. At that point, he could terminate his husband's benefits and start getting his full retirement rate, which would come with that 32 percent bonus.


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