Chris Stein, CFP®
Yes Virginia, There Is File and Suspend
With the furor over Social Security changes from the 2015 Bipartisan Budget Act many people have only a partial understanding of the changes to rules involved with suspending your Social Security benefit. The death of the traditional reason couples used the File and Suspend strategy has created the inaccurate rumor that “suspending” is now not allowed. The good news for Miss Virginia is that both filing and suspending are alive and well. Suspending is just not quite as useful as before. As we have mentioned in previous posts, under the new rules if you suspend benefits, any person claiming under your record will also have their benefits suspended. This includes spousal and other family benefits. So why might a person still want to suspend?
Going Back to Work:
If you have filed, but then decide to go back to work and you no longer need the SS benefits you could suspend them as long as you have reached your full retirement age (66 for most readers) In exchange for shutting off your SS benefits the SSA will increase your future benefit by 8% per year as long as they are suspended up to your age 70. This might be a way for you to go back to work and generate for yourself a much larger SS benefit for the future when you turn it back on.
If after claiming you receive an unexpected inheritance you may decide you prefer a larger SS benefit later in life. Once again you can suspend your benefit and earn delayed retirement credits up to age 70 as long as you are at least full retirement age (FRA) when suspending
Regretting Early Filing:
Many people file at the age of first eligibility (62), only to later regret doing so since they permanently reduce your benefits for filing early. You must wait until your FRA to suspend, but once you suspend you will earn those delayed retirement credits of 8% per year, just as you would have if you had waited to claim until 70. You will not get back the reduction for claiming before your FRA, but you can offset much of that reduction by earning delayed retirement credits between FRA and age 70
Often times the recommendation to delay filing for SS comes from the need to create the largest Survivor Benefit possible as part of survivorship planning for couples. But if you were single when filing this is not an issue, until you re-marry. Many seniors find love late in life and choose to marry. At that time it may be in the couple’s best interest to try to maximize one of the two benefits since the survivor only gets to keep one. If both are claiming already it might be wise to consider one of the couple suspend in order to earn those delayed retirement credits. Yes, you give up income now, but you create a larger legacy benefit for the spouse living the longest.
The bottom line is that a person’s ability to suspend is intact. And there have always been and will continue to be reasons to suspend after filing that have not gone away with the law change.
For more information on this topic, please use the play button below.
Podcast: Play in new window | Download