As a Certified Financial Planner™ practitioner, I’m always looking for strategies to help my clients maximize their Social Security benefits. There are a number of loopholes in the Social Security system that aren’t obvious and can be used to put a lot of money in your pocket (often well over $100,000). Among the most popular of these loopholes is “Claim and Suspend.” The “Claim and Suspend” strategy can be used for both singles and married couples and I’ll show you how this very profitable strategy works for both.
First, we’ll look at how “Claim and Suspend” works to increase Social Security benefits for a married couple. To do this, we’re going to assume the husband and the wife have reached their Full Retirement Age, which for most Baby Boomers is age 66. Full Retirement Age is the age at which a person who has paid into the Social Security system is entitled to his or her Primary Insurance Amount (or PIA) and will not see a reduction in Social Security benefits. In our example, we’re also going to assume the husband earned more income over his lifetime than his wife, therefore having a higher PIA.
To effectively use the “Claim and Suspend” strategy, the husband will file for his Social Security benefits at age 66 but then immediately tell the Administration not to send him monthly checks until later. In this example, he’s going to wait until age 70.
The reason why the husband claims his benefits but suspends them is because the act of claiming allows his wife to start taking her spousal Social Security benefits. In other words, she can get a monthly check based on her husband’s work history.
It’s important to note that the husband and wife have to both be at or above their Full Retirement Age for this strategy to work, but no older than 70. Also, the wife must file a “Restricted Applications.” Since the wife in our example has reached her Full Retirement Age and her husband has claimed (but suspended) his Social Security payments, the door is now open for the wife to get half of her husband’s monthly PIA. Since in our example his PIA is $2,000 a month, his wife will get a spousal benefit of $1,000 (her spousal benefit will never be more than half of his PIA). The bottom line is for the next four years, the wife will collect $48,000 in spousal benefits.
But there’s even better news for our married couple. When you don’t take Social Security benefits at age 66, the Administration grows your PIA by 8% a year for a maximum total increase of 32% Well, guess what happened to the wife’s own benefit based on her own work history? By not claiming her own benefit, she let her PIA grow by 8% a year! So if her PIA at age 66 is $900 monthly, by waiting 4 years, her eventual monthly benefit grows to $1,188 permanently (plus COLA adjustments). When she reaches age 70, she will then turn off her spousal benefit of $1,000 a month and then turn on her own benefit based on her work history.
With some thorough Social Security planning, the short-term reward for our a married couple is $48,000 of spousal benefits that may otherwise have gone unclaimed because SSA workers cannot give advice on maximizing benefits. The long-term reward is a combined extra $1,028 monthly in Social Security income because the husband and wife are increasing their respective PIAs by 8% a year by waiting until age 70 to take their own worker’s benefit. Assuming they both live another 20 years, by using the “Claim and Suspend” strategy, they pocketed an extra $246,720 in lifetime benefits!
Now that we know how “Claim and Suspend” helps married couples, how does this profitable strategy help singles? By now, the first reason is obvious but worth repeating; your PIA rises 8% a year from age 66 until 70 for a maximum increase of 32%. The second way “Claim and Suspend” benefits singles is if someone claims benefits at his or her Full Retirement Age then immediately suspends them, the Administration will make those suspended payments available as a lump sum anytime up to the month before one turns age 70. It’s very important to state that the lump-sum request must be made before the month you turn 70! This lump-sum option is also available for married couples, so if you need access to a potentially large pot of cash for an emergency like long-term care, you can call in your delayed retirement benefits and the Social Security Administration will send you a check equal to the amount of the suspended payments. While it’s true you would be forfeiting the permanent 32% increase in monthly payments that you would get for the rest of your life beginning at age 70 (8% a year x 4 years if your FRA is 66), in its place you would get a lump-sum payment of $127,824 ($2,663 x 12 months x 4 years). On top of that lump-sum, you would begin receiving monthly benefits of $2,663 a month increased by cost of living adjustments.
The “Claim and Suspend” strategy is just one of a number of Social Security claiming strategies you can use to boost your lifetime benefits. But with any financial strategy, especially involving Social Security, it’s advisable to review your filing decision with a Certified Financial Planner™ practitioner or consultant who is highly experienced in this particular area.
Securities and advisory services offered through Ausdal Financial Partners, Inc. Member FINRA/SIPC 5187 Utica Ridge Road Davenport, IA 52807 563-326-2064 www.ausdal.com. Public Retirement Planners, LLC and Ausdal Financial Partners, Inc. are separately owned and operated.