Here’s the situation: You are 68 years old and semi-retired. Two years ago, knowing that you’d be working part-time and would not need the money, you decided to delay the start of your Social Security benefit. Plus, as a regular reader of this column, you are aware that for every year beyond your “Full Retirement Age” (FRA) that you postpone receiving your monthly check, your benefit increases by 8% thanks to something called the “Delayed Retirement Credit” (DRC). At a minimum, over 4 years this amounts to an increase of 32%.
In your case, your benefit at age 66 (FRA) would have been $1,600/month. You calculate that if you wait until you are 70 to begin, your check will be at least $512/month higher.(1) In other words, delaying for four years (48 months) results in a benefit of $2,112/month. In addition, you also get whatever cost-of-living increases (COLAs) beneficiaries received over that period. You think to yourself, “Where else can I get a guaranteed return of at least 8%/year these days?”
Typically, if someone isn’t ready to begin taking their Social Security benefit, they simply don’t file. But you have a sharp financial advisor. When you turned 66 (your FRA), she recommended that you use a strategy called “file-and-suspend.” This involves taking two unrelated actions at the same time.
Let’s break this down:
a. You can file for your own Social Security benefit as early as age 62.
b. Anyone who is FRA or older can request that their monthly checks be temporarily stopped, that is, suspended.(2)
On her advice, at age 66 you applied for Social Security and wrote “suspend benefit” on your application. (You can do this either in person at your local Social Security office or via a paper or online application.)
Importantly, this step established the age at which you “filed” for your Social Security benefit- even though you were not receiving it.
Show Me the Money
Shortly after you turned 68, you found yourself in dire need of cash. Perhaps a major storm damaged your house or you needed expensive medical treatment or you fell in love and decided to quit work so you could tour the world with your new spouse. You think to yourself, “Gee, if only I’d been collecting Social Security for the past two years. I could have stuck the money in the bank. By now I’d have about $40,000.”
Good news: There is still a way to put your hands on that money.
Canceling A Suspension
All you have to do is notify Social Security- by letter, phone or in person- that you wish to have your suspended benefit reinstated. This starts your monthly checks coming. In addition, you can also ask them to pay you the benefits that were held back, or suspended. You’ll get a check for the full amount of benefits you could have received going back to the date that you made your initial filing.
Although you lose the 8%/year Delayed Retirement Credits you could have earned, you will still receive whatever cost-of-living increases Social Security beneficiaries were granted.
Reminder: File-and-Suspend is a strategy that is only available to someone who is at least Full Retirement Age. Unless you request that it start sooner, you will automatically begin receiving your monthly benefit check when you turn 70. Since you can no longer receive Delayed Retirement Credits past age 70, there is no point in delaying the start of benefits beyond this age.
1. $1600 x 8%= $128. $128 x 4 years (48 months) =$512.
2. Why would you do this? Because from that point forward, your benefit will earn Delayed Retirement Credits- an increase of 8% every 12 months.