In our previous blog posts, we discussed the social security file and suspend strategy for couples, now we discuss the file and suspend strategy for individuals.
If an individual files-and-suspends at full retirement age, a subsequent filing for retroactive benefits goes all the way back to the date of the file-and-suspend. The reason is that under Social Security rules, there's a difference between the standard filing for retroactive benefits, and requesting to reinstate voluntarily suspended benefits. While the former can only go back 6 months, the latter always goes back to the date of the voluntary suspension.
As a result of these rules, an individual who plans to delay benefits anyway may choose to file-and-suspend, rather than simply waiting. The set of examples below illustrates why:
Example 5a.
Margaret is a single 66-year-old woman eligible for a $1,600/month retirement benefit. Due to her good health, she plans to delay her retirement benefits until age 70 to earn delayed retirement credits. However, at age 68, Margaret gets the unfortunate news that her health has taken a significant turn for the worse, and she will not be expected to live much longer. Realizing there's no longer much reason to delay her Social Security benefits, she applies immediately - and retroactively - but at best she can only get benefits going back to age 67 1/2 (a 6-month lump sum retroactive payment), and then begin her payments going forward (which will be approximately 12% higher due to 1.5 years of delayed retirement credits from age 66 to 67 1/2).
Example 5b.
Continuing the prior example, had Margaret filed and suspended at age 66, then when she got the unfortunate news at age 68, she would be eligible to reinstate her suspended benefits going all the way back to age 66 - which means she'd receive a lump sum payment for not just 6 months, but 24 months of payments (and going forward, her payments for her short remaining life expectancy would be her original $1,600/month, without any delayed retirement credit increases). As a result of the file-and-suspend strategy, Margaret was able to recover a larger portion of her delayed benefits given her change in health. And notably, had Margaret lived all the way to age 70 and still been healthy, she could have simply started her retirement benefits at that time, earning the same age-70 delayed-retirement-credit benefit she would have had without filing and suspending (but without the opportunity to change her mind).
Arguably, given that filing and suspending allows retirees to hedge their bets and allow them to change their minds later and receive a lump sum for all the benefits they had waited upon (albeit without any adjustment for foregone interest), and at worst benefits are simply started with the same delayed retirement credits they would have had anyway, there is little reason for retirees - individuals or couples - who plan to delay benefits anyway, NOT to file and suspend along the way, just for the flexibility.
If an individual files-and-suspends at full retirement age, a subsequent filing for retroactive benefits goes all the way back to the date of the file-and-suspend. The reason is that under Social Security rules, there's a difference between the standard filing for retroactive benefits, and requesting to reinstate voluntarily suspended benefits. While the former can only go back 6 months, the latter always goes back to the date of the voluntary suspension.
As a result of these rules, an individual who plans to delay benefits anyway may choose to file-and-suspend, rather than simply waiting. The set of examples below illustrates why:
Example 5a.
Margaret is a single 66-year-old woman eligible for a $1,600/month retirement benefit. Due to her good health, she plans to delay her retirement benefits until age 70 to earn delayed retirement credits. However, at age 68, Margaret gets the unfortunate news that her health has taken a significant turn for the worse, and she will not be expected to live much longer. Realizing there's no longer much reason to delay her Social Security benefits, she applies immediately - and retroactively - but at best she can only get benefits going back to age 67 1/2 (a 6-month lump sum retroactive payment), and then begin her payments going forward (which will be approximately 12% higher due to 1.5 years of delayed retirement credits from age 66 to 67 1/2).
Example 5b.
Continuing the prior example, had Margaret filed and suspended at age 66, then when she got the unfortunate news at age 68, she would be eligible to reinstate her suspended benefits going all the way back to age 66 - which means she'd receive a lump sum payment for not just 6 months, but 24 months of payments (and going forward, her payments for her short remaining life expectancy would be her original $1,600/month, without any delayed retirement credit increases). As a result of the file-and-suspend strategy, Margaret was able to recover a larger portion of her delayed benefits given her change in health. And notably, had Margaret lived all the way to age 70 and still been healthy, she could have simply started her retirement benefits at that time, earning the same age-70 delayed-retirement-credit benefit she would have had without filing and suspending (but without the opportunity to change her mind).
Arguably, given that filing and suspending allows retirees to hedge their bets and allow them to change their minds later and receive a lump sum for all the benefits they had waited upon (albeit without any adjustment for foregone interest), and at worst benefits are simply started with the same delayed retirement credits they would have had anyway, there is little reason for retirees - individuals or couples - who plan to delay benefits anyway, NOT to file and suspend along the way, just for the flexibility.
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