A 66-year-old individual who was eligible for a $1,000/month benefit filed for benefits early at age 62, reducing benefits by 25% to $750/month. If the individual now chooses to suspend benefits, he can begin to earn 8%/year delayed retirement credits for the next four years, ultimately increasing the benefit by 32% back up to $990/month. (Ongoing cost-of-living adjustments would also be applied along the way.)
You may wonder if the file-and-suspend strategy is a Social Security "loophole" for smart people to maximize benefits, in reality it was a separate provision specifically added to the Social Security system in 2000 under the Senior Citizens' Freedom To Work Act to allow the associated planning strategies to be done, especially regarding planning for couples' benefits.
What happens if you don't use the file and suspend strategy? See our next blog post.