Maximize Your Social Security Benefits with "File and Suspend"

Social Security is the primary retirement plan for many Baby Boomers, even though the health of the program is highly suspect for younger Americans.  Deciding when to start taking Social Security benefits can be really tough, and is entirely dependent on your personal situation.

Today we are going to do a case study and help Paul and Gail figure out when they should start taking Social Security.   Paul and Gail are both 60 years old.  They plan on working for as long as possible because they do not feel they can afford to retire.  Paul earns about $30,000 per year, while Gail earns about $20,000 per year.  Paul only has about $50,000 saved up for retirement through his employer's pension plan.  Social Security will be the financial lifeline of their twilight years.

For people who have long life expectancies, waiting as long as possible to take Social Security benefits is a real boon.  Your monthly payment continues to grow at 8% if you do not take the benefits as soon as you qualify for them.  This is part of Social Security's Delayed Retirement Credit program.  If you take Social Security benefits at the youngest age possible, your monthly payment is locked at a low rate.  See the amounts below:

SOCIAL SECURITY BENEFITS AND DELAYED RETIREMENT

	Paul			Gail			Total
	Monthly	Annual		Monthly	Annual		Monthly	Annual
Age 62	$754	$9,048		$617	$7,404		$1,371	$16,452
Age 66	$1,047	$12,564		$850	$10,200		$1,897	$22,764
Age 70	$1,439	$17,268		$1,160	$13,920		$2,599	$31,188

As you can see, waiting until age 70 will maximize the benefit amount. Although Social Security benefits are significantly below what Paul and Gail are currently earning at their jobs, there are also significant tax savings associated with Social Security income, as well as reduced job and transportation costs.

Luckily, Paul and Gail have another option available: File and Suspend.  When both spouses reach retirement age, the higher-earning spouse files for social security benefits and then immediately suspends their own benefits and delays claiming them until they are on an older age.  One you have filed for benefits, your spouse can now file for spousal benefits on your social security record.  The spouse's social security benefits will continue to grow.

• Age 66: Paul files and suspends his Social Security benefits.  Gail applies for spousal benefits, and receives $524 per month or $6,282 per year to supplement their wages.  
• I recommend that while they are working full time, they save their entire Social Security income against future years when their pay will decrease.
• Age 70: Paul reverses the suspension on his Social Security benefits.  Gail files for her Social Security benefits.  They both receive their maximum income amount, totaling $31,188. 

The Social Security website has a lot of helpful benefit calculators available online.  

Additional reading can also be found with the AARP: How to Maximize Your Social Security Benefit  and the National Association of Personal Financial Advisors: How to File and Suspend Your Social Security Benefits.