File and suspend is your friend

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At your full retirement age for Social Security retirement benefits, you have the ability to “file and suspend” benefits. Couples often do this so the spouse is eligible for a spousal benefit, while the worker that filed and suspended benefits can earn delayed retirement credits. For the purpose of this blog post, I’m going to assume that both the worker and the spouse are full retirement age so reduced benefits are not a consideration. Full retirement age is currently age 66. Full retirement age will eventually increase to age 67.

File and suspend has another important benefit, not available if you just wait to file for benefits. With file and suspend you can undo the election and get paid benefits back to the filing date. When you wait to file, the most you can get is six months of retroactive benefits. With file and suspend, the option to unwind the decision is available up until the time that you start receiving delayed benefits.

Singles can also benefit

The file and suspend option can also work for single people at their full retirement age. They can earn delayed retirement credits until age 70, but if their health or financial circumstances has them regretting the decision to wait, they can change their mind and get paid the benefits back to their file and suspend date.

Individuals who started receiving benefits prior to their full retirement age also have the ability to suspend benefits after reaching full retirement age up through age 70. By doing so, they can earn an increase of 8 percent in benefits per year, partially undoing the reduction in benefits received by filing early.

The file and suspend option gives you a measure of financial flexibility not often seen in government programs. With couples, I’ve long been a fan of the worker with the higher earnings record trying to earn delayed retirement credits by filing and suspending benefits at full retirement age — but file and suspend isn’t just for couples.

I’m indebted to Michael Kitces and his blog, Nerd’s Eye View, for his insights on this topic. In his blog he also provides anecdotal evidence that the local Social Security office doesn’t always get this right on the first pass.