THINKING RETIREMENT – ANDY LANDIS“File and suspend.”  “Claim and suspend.”  Everywhere you look there are articles about Social Security’s File and Suspend strategy.  It’s good to know.  But check out the other powerful ways to profit by suspending your Social Security payments.

The Classic: File and Suspend – The general idea is to file for payments, but immediately suspend them.  The option is available if you’re first filing for Social Security at Full Retirement Age (FRA), which is currently 66 or above.  You can do it even if you continue working. File and Suspend has three gains:

 Your payments continue to grow while suspended, up to 132% at age 70

Your spouse can file for spousal payments on your suspended record, bringing in up to 50% of your payment.

You build a “Contingency Fund” you can tap into if necessary.  See below for mor

File and Suspend can yield higher total payouts than filing at 66, if you live to average life expectancy. And the spousal payments can be a “bonus” if you were planning to wait until age 70 to file.

Start payments when you’re ready – If you File and Suspend, your payments will automatically start at age 70.  Your payment amount will then be your age 70 payment (132% of your FRA payment, assuming an FRA of 66).

Or, if you choose, you can start your payments any time from 66-70.  Then your payment amount would be between your age-66 and age-70 payments. 

Contingency Fund – As noted, you can “unsuspend” any time from 66-70 to start your payments.  Amazingly, you can even unsuspend retroactively, releasing your accumulated Social Security payments in a lump sum.  I call this the “Contingency Fund.” It works because if you unsuspend before age 70, you can specify any start date, back to the date of suspension.

The Contingency Fund is available only if you suspend payments.  If you simply delay filing, you can get a maximum of 6 months of retroactive payments.  If you File and Suspend at 66, you have access to all payments back to age 66, even if you’re 69 and 11 months old.

Some financial advisors recommend that all 66-year-olds File and Suspend to keep open the Contingency Fund option—assuming you don’t want or need Social Security immediately. (Exception: don’t File and Suspend if you want a spousal or ex-spousal payment.  Filing on your own work record can block that option.)  When and why would you tap into the contingency fund?

Perhaps you need quick cash for medical bills, a tax liability, a purchase, or an investment opportunity.

Or maybe your life expectancy is suddenly shorter.  You suspended to get more money in the long run, but now you don’t have a long run. So you unsuspend retroactively and take the cash.

Caution:  If you tap into your suspended payments, your future monthly payments will be lower than if you stayed suspended.

Suspending payments already in effect – You can suspend payments that you’re already getting.  Here’s an extreme example.

Jim files for Social Security at 62 because he needs the income.  His payment is $750 per month (75% of his age-66 payment of $1,000 per month). At 66 his financial situation is better.  (He’s working, or received an inheritance or a settlement, or what have you.)  He decides he doesn’t need the Social Security immediately.  He suspends his Social Security from 66 to 70, when his payments automatically resume.  His new payment amount is 132% of his original $750 per month, or $990.  Basically he has “undone” his reduction for early filing.

Turn the tap on and off – You can voluntarily suspend, unsuspend, and re-suspend, like turning a tap on and off.  For every month you suspend payments, your payment level increases fractionally.

The fine print

  • Suspension is available only for your own retirement payments, not spousal or widow’s payments.
  • It’s available only from your FRA to age 70.
  • You can suspend or unsuspend with a phone call.  SSA doesn’t need your signature.
  • SSA’s website on suspending payments is HERE
  • Anything I say is informational only, and only SSA can give official information or make official decisions, so be sure to run any payment plan by them.

In short, the File and Suspend strategy is only the beginning.  Anyone can use the power to suspend payments if the situation is right.  As always, keep on planning.

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