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Social Security offers few second chances. But Fidelity Investments recently highlighted an under-the-radar option that is worth considering: It can boost benefits by up to 24% for those who may have claimed too early.
Generally, Social Security recipients lock in their base benefit when they first claim it. Those who wait to file for retirement benefits at 70 will receive checks that are about 76% more than what they would have received at their earliest eligibility of 62. After you claim, your monthly benefit grows only by an annual cost-of-living adjustment, or COLA, at the same rate for all beneficiaries.
Yet there’s an exception to this rule that allows Social Security recipients who claimed benefits early to suspend their benefits once they reach full retirement age, which ranges from 66 to 67 for everyone born in 1943 and after. Paused benefits earn delayed retirement credits for every month they’re suspended until age 70. That can boost your benefits by 8% a year for a maximum of three years, resulting in a 24% bump.
It’s unclear how many people are taking the do-over. A Social Security Administration spokesperson said the agency didn’t have records on how many beneficiaries used this strategy. Leanna Devinney, a Certified Financial Planner with Fidelity, says she rarely sees clients reach full retirement age and employ the ”file and suspend” strategy.
One note: Congress has cracked down on a different file-and-suspend strategy, eliminating a loophole in 2015 that had allowed a couple’s benefits to continue accruing retirement credits while one spouse claimed spousal benefits against the other’s record. This do-over is also different from Social Security’s “file and withdraw” strategy, which allows people to stop benefits within the first year after claiming and pay back all they have received in order to reapply for higher benefits later.
If you’ve filed early, suspending your benefits until age 70 doesn’t confer bigger paychecks than delaying until 70 to claim. But the move could be a boon for people who have come to a better understanding of their cash flow in retirement, Devinney says.
People who claim early out of caution may realize they actually have enough money from other sources to meet their expenses. Others might have come into an inheritance or found a part-time job that reduces their reliance on Social Security.
As time goes on, retirees may also have a better sense of their longevity. The longer you live in good health, the greater the chances you’ll continue to do so. The life expectancy at birth of an American male is just 73, according to recent research, but that statistic isn’t relevant for those already in retirement, partly because it includes people who die young. The life expectancy of a nonsmoking 65-year-old male in excellent health is 88, according to estimates, and for a woman in the same circumstances, it’s 90.
Inflation-adjusted Social Security payments offer a good hedge against longevity. Not only do you receive greater monthly payments by waiting, but you also gain more from compounding, since the annual COLA is applied to a higher benefit. You won’t forfeit the raise during the years you suspend your benefit, either: Once you turn 62, the annual inflation adjustment is applied to your future benefit.
The file-and-suspend move may also help the surviving spouse in a couple. The longer the higher earner waits until age 70 to claim, the greater the benefit their spouse will receive if they die first. Survivor benefits allow a surviving spouse to receive 100% of the deceased spouse’s benefit once the survivor reaches full retirement age. This is in contrast to spousal benefits paid out when both spouses are alive, which are capped at 50% of the higher earner’s benefits at full retirement age.
While waiting until 70 offers the highest monthly payment, it isn’t an all-or-nothing proposition: Whether you file for good or file and suspend, every month you wait beyond your 62nd birthday boosts your future benefit.
Elizabeth O'brien, Barron's
How to Boost Your Social Security Check by 24%
Generally, Social Security recipients lock in their base benefit when they first claim it. Those who wait to file for retirement benefits at 70 will receive checks that are about 76% more than what they would have received at their earliest eligibility of 62. After you claim, your monthly benefit grows only by an annual cost-of-living adjustment, or COLA, at the same rate for all beneficiaries.
Yet there’s an exception to this rule that allows Social Security recipients who claimed benefits early to suspend their benefits once they reach full retirement age, which ranges from 66 to 67 for everyone born in 1943 and after. Paused benefits earn delayed retirement credits for every month they’re suspended until age 70. That can boost your benefits by 8% a year for a maximum of three years, resulting in a 24% bump.
It’s unclear how many people are taking the do-over. A Social Security Administration spokesperson said the agency didn’t have records on how many beneficiaries used this strategy. Leanna Devinney, a Certified Financial Planner with Fidelity, says she rarely sees clients reach full retirement age and employ the ”file and suspend” strategy.
One note: Congress has cracked down on a different file-and-suspend strategy, eliminating a loophole in 2015 that had allowed a couple’s benefits to continue accruing retirement credits while one spouse claimed spousal benefits against the other’s record. This do-over is also different from Social Security’s “file and withdraw” strategy, which allows people to stop benefits within the first year after claiming and pay back all they have received in order to reapply for higher benefits later.
If you’ve filed early, suspending your benefits until age 70 doesn’t confer bigger paychecks than delaying until 70 to claim. But the move could be a boon for people who have come to a better understanding of their cash flow in retirement, Devinney says.
People who claim early out of caution may realize they actually have enough money from other sources to meet their expenses. Others might have come into an inheritance or found a part-time job that reduces their reliance on Social Security.
As time goes on, retirees may also have a better sense of their longevity. The longer you live in good health, the greater the chances you’ll continue to do so. The life expectancy at birth of an American male is just 73, according to recent research, but that statistic isn’t relevant for those already in retirement, partly because it includes people who die young. The life expectancy of a nonsmoking 65-year-old male in excellent health is 88, according to estimates, and for a woman in the same circumstances, it’s 90.
Inflation-adjusted Social Security payments offer a good hedge against longevity. Not only do you receive greater monthly payments by waiting, but you also gain more from compounding, since the annual COLA is applied to a higher benefit. You won’t forfeit the raise during the years you suspend your benefit, either: Once you turn 62, the annual inflation adjustment is applied to your future benefit.
The file-and-suspend move may also help the surviving spouse in a couple. The longer the higher earner waits until age 70 to claim, the greater the benefit their spouse will receive if they die first. Survivor benefits allow a surviving spouse to receive 100% of the deceased spouse’s benefit once the survivor reaches full retirement age. This is in contrast to spousal benefits paid out when both spouses are alive, which are capped at 50% of the higher earner’s benefits at full retirement age.
While waiting until 70 offers the highest monthly payment, it isn’t an all-or-nothing proposition: Whether you file for good or file and suspend, every month you wait beyond your 62nd birthday boosts your future benefit.
Elizabeth O'brien, Barron's
