After listening to our discussion of Suspending Benefits we had a reader/listener contact us with a hypothetical question. To set up this question I want to remind everyone about the basics of Suspending Benefits. Once you reach your Full Retirement Age (FRA) you have the right to suspend your benefits. This essentially temporarily halts the payments of your benefits. Then at any time between the day of suspension and your age 70 you can either re-start your benefits that have grown to a larger amount due to Delayed Retirement Credits, or you can ask for some or all of your suspended benefits be paid to you in a lump sum. Basically you will either get credits for delaying OR a lump sum payment, but not both. It was the basics of this feature of Social Security that led our reader to the following question:
“I have come up with a question for you that I will provide in a hypothetical story. Mr. X and Mrs. X are the same age, worked the same length of time with the same income history (for our example, so their SS benefits are the same). At full retirement age they both file and suspend. Then, when they are both 69½, Mr. X dies in a tragic marshmallow accident. Here is the question, can Mrs. X claim the accrued (lump sum) SS benefit of her husband’s SS and then when she turns 70 take her fully enhanced SS? (or can only Mr. X have claimed the lump sum accrued amount).”
Flexibility of File & Suspend
This is an interesting attempt at an extension of a claiming strategy we have discussed previously. That is the flexibility you gain by Filing and Suspending your benefit with the intent to later claim a higher monthly benefit at age 70, but retaining the OPTION of instead claiming a lump sum benefit for your suspended payments prior to age 70. If you do not File and Suspend you do not have this flexibility. But as we will learn, the variation of the strategy the reader proposes does not really work well in practice.
Once a person dies nobody has the right to go claim the lump sum suspended benefits. Those are effectively “lost”, however the survivor benefit on the dead person’s record is based upon the benefit they had the right to receive the day of their death. This becomes important in the second part of the question. The wife would not want to claim her own age 70 benefit in this case, but rather ask for her lump sum suspended benefit check, then turn around and file for her survivor benefit on her husband’s record. Since his age 69.5 benefit would be nearly the same as her age 70 benefit, since they have the same PIA in this example, she could effectively claim her lump suspended benefit then receive the equivalent of her age 70 benefit (69.5, technically) by claiming a survivor benefit.
I would like to point out that this “strategy” really only pays off if one of them dies close to, but not over their age 70. This sounds a lot like gambling to me. The better strategy would be for one to file and suspend and the other to claim a spousal benefit alone. This way they each will have their own benefit growing to age 70 when they turn it on, but in the meantime they are collecting ½ of one of their benefits. We call this being “paid to wait”. You are getting something while waiting, plus the spouse who suspended still retains the option of claiming a lump sum before age 70 if they so choose. If they are trying to delay to age 70 to maximize benefits then clearly they are assuming they will live beyond 70. If that is the assumption then our alternate strategy is almost surely a better path.
I really appreciate the creativity of the question as the answer helps clarify exactly how the claiming to lump sum suspended benefits works. If you think you have come up with a great SS claiming strategy, please write to us as we always enjoy hearing of new ones, or researching why one may or may not work.
To listen to our audio discussion on this topic, please use the play button below.