Maximizing Social Security Benefits

I was intrigued when I read this today. This is a creative way to maximize your retirement benefits when it's time to tap into them:

A little-known way to increase Social security benefits—for some

Would you like to maximize the Social Security benefits your spouse gets—even as you maximize the benefits you will receive?

You may be able to using a Social Security procedure known as "file and suspend" or, sometimes, as "claim and suspend."

If you are married and have reached your full retirement age,* you can simultaneously file for Social Security, then request that your benefits be suspended until you reach age 70.

However, in the meantime, your spouse could apply to begin receiving Social Security benefits based upon your earnings record—even as you continue working.

In some instances—where one spouse has not worked for pay, or earned considerably less income than the other—the benefit the spouse would receive could be higher than the benefit the spouse would receive under his or her own work record.

How "file and suspend" works

Alan Haft, a Newport Beach, California, financial advisor and author of the book You Can Never Be Too Rich, provides this hypothetical example of how file-and-suspend might help your spouse and you.

Henry and wife Julia reach age 66. He is eligible for a monthly $2,000 benefit, while Julia, if she were to file for Social Security, would get $700 a month.

However, Henry decides to invoke his file-and-suspend option. Even so, Julia can file to receive her benefits based on Henry's earnings.

Those benefits will be $1,000, half of what Henry was eligible to receive at 66.

In other words, because Henry has taken the file-and-suspend option Julia's benefits immediately jump by $300 a month.

You and your spouse get another boost when you turn 70

If you reach your full retirement age and delay collecting your benefits until age 70, your eventual benefit will grow by 8% each year between ages 66 and 70, says Mark Lassiter, a Social Security Administration representative.

"If you wait until age 70 to receive your benefits they will be 32% higher than they would have been at age 66," he says.

Extending the hypothetical scenario of Henry and Julia, both would see an increase in their benefits checks if Henry delays filing for his Social Security benefits until age 70.

Under this scenario, when Henry finally starts collecting his benefits at age 70, he would find that his monthly check would be $2,640, not the $2,000 he would have received at age 66.

And if he were to die before Julia, she would be entitled to get 100% of the $2,640 Henry had been receiving.

Should you file and suspend?

Although filing for Social Security and then suspending payments can be financially beneficial, it won't increase benefits for all couples.

For example, it won't work in instances where two spouses earned similar amounts over their careers. If the husband files-and-suspends his spouse would get 50% of his benefits—but that 50% would yield a monthly check that would be lower than the one she would be eligible for under her own earnings record.

Also, obviously, you should consider your health before deciding to postpone your Social Security benefits. "If you are not in good health and your wife is not in good health and you need the money now, file and suspend may not be the best strategy," Mr. Lassiter says.

On the other hand, Mr. Lassiter says, "a lot of people outlive their (financial) resources." And that means, he adds, that if you can you may want to consider file-and-suspend to increase your benefits for a time when you may need more money than you need the day you retire.

Finally, if you are about to turn 66 keep in mind that you don't have to rush to make a decision about file and suspend immediately. You can use that option later, too.

Conversely, if you have invoked your file-and-suspend option, but then find you do need your Social Security check before you turn 70, you can immediately reinstate getting your benefits.

“You are not locking yourself into a four-year decision,” when you file-and-suspend, Mr. Haft says.

The opinions of Alan Haft and Mark Lassiter are not necessarily those of Vanguard.
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