Many people complain that Social Security has more benefits for married couples than it does for single people. And indeed there are many strategies couples can use to boost their total family benefits, though they rely on both spouses working together to produce the best possible outcome.
But one strategy that most people think of as being for couples can actually give singles some financial flexibility in their retirement as well. Meet the file-and-suspend strategy.
The basics of file-and-suspend
In general, the file-and-suspend strategy gives couples the flexibility to get some benefits immediately while boosting their total payouts from Social Security later. If you're married, you can generally claim Social Security benefits either by using your own earnings history or by claiming spousal benefits that are based on your spouse's work history.
To use the file-and-suspend strategy, you wait until you reach full retirement age. At that point, you can file for benefits based on your own work history. That's a necessary step in order for your spouse to claim spousal benefits. If you did nothing else, then you at that point would get regular Social Security benefits, and your spouse's benefits would be based on your spouse's age and your Social Security payment.
But to implement the file-and-suspend strategy, you then immediately suspend the benefits you're entitled to receive. That means you won't get monthly payments, even though your spouse will. But it does mean your own benefit will grow, entitling you to monthly payments that are as much as 32% larger if you wait until age 70 before you start receiving them.
File-and-suspend for singles
The primary advantage of file-and-suspend for couples is that it adds spousal benefits to the mix. But if you're not married, there are no spousal benefits, so it's fair to ask how file-and-suspend can be of use to singles.
The reason singles should consider a file-and-suspend strategy has to do with the way the Social Security Administration treats people who have suspended their benefits. Consider: If you expect to wait until age 70 to start taking Social Security and therefore don't file for benefits until then, then once you start receiving monthly payments, they'll be about 32% higher than they would have been if you'd taken them at normal retirement age. If you change your mind between ages 66 and 70, you can receive slightly smaller monthly payments at any time by filing for benefits at that point. What you can't get, though, is back payments for what you would have received under Social Security if you'd filed at age 66.
That's where the file-and-suspend strategy comes in. If you file for benefits at your normal retirement age of 66 but then immediately suspend them, then you'll have the option later to collect higher monthly payments when you decide to start taking them. But you also have another choice: You can collect a lump sum based on the total payments you would have received if you hadn't suspended your benefits.
Showing you the money
For example, say your work history entitles you to $1,000 in monthly benefits at full retirement age, but you decide instead to wait until age 70. Your expectation is that you'll receive $1,320 per month at age 70 because of the additional delayed retirement credits you'll earn. As it turns out, though, you need money sooner than that, and you decide to take benefits at age 68.
If you didn't file and suspend, then your only option is to take benefits at age 68, with two years of delayed retirement credits boosting your monthly payment to $1,160. But if you did file and suspend, you'd have another option: collecting a lump sum equal to 24 months of the $1,000 payments you would have been entitled to at age 66 if you hadn't suspended your benefits. That's a total of $24,000.
There's a trade-off with this method, though. If you take the $24,000 lump sum, you don't get credit for having waited for your benefits. Therefore, going forward, you'll only get $1,000 monthly rather than $1,160. For many people, though, the lump sum is much more valuable, as it can get them out of an immediate financial problem.
Social Security is full of tricks like this, and it's important to know as many of them as you can. Even though file-and-suspend is mostly for married couples, singles can get some value out of this well-worn strategy, too.