The Social Security claiming strategy known as “file and suspend” always generates a lot of questions.
One reader wrote to me recently asking what would happen if someone who had filed and suspended his Social Security benefits at his full retirement age of 66 died before collecting his benefits.
The person filed and suspended so he could trigger spousal benefits for his wife, while his own benefits accrued delayed retirement credits worth 8% per year for each year he postponed collecting them beyond his full retirement age up to age 70. Remember, you must be at least full retirement age to file and suspend.
The man planned to collect his retirement benefits at age 70 when they would be worth 132% of his full retirement age benefit amount. Not only would that maximize the couple's retirement income, but it would also create the largest possible survivor benefit for the remaining spouse.
But you know the old saying: Man plans, God laughs. The person died before ever collecting his Social Security benefits.
Regular readers of this column know that the file-and-suspend strategy is a powerful retirement income tool. In addition to triggering spousal benefits while a worker's retirement benefit continues to grow, the file-and-suspend strategy can also act as an insurance policy.
Once you file and suspend, you can change your mind at any time and request that your suspended benefits be paid as a lump sum back to the date of suspension in lieu of receiving delayed retirement credits.
For example, assume you filed and suspended at your full retirement age of 66 and two years later you changed your mind. Perhaps you received a bad medical diagnosis and were no longer concerned about outliving your money. Or maybe you decided you wanted to take a world cruise and a wad of cash could come in handy. Whatever the reason, you could contact Social Security and tell then you wanted to “reinstate the voluntarily suspended retirement benefit.”
“Generally, an individual who has suspended his benefit can request it be reinstated at any time during the suspension period,” a Social Security spokesman confirmed in an email. “We will pay any benefit due beginning with the first month of reinstatement.”
In other words, at 68 you could ask Social Security to pay you two years' worth of your suspended retirement benefits, and going forward you would receive monthly payments based on your full retirement age benefit amount. You would not receive any delayed retirement credits.
The reader who sent me his question asked if a widow could collect a lump sum from Social Security if her husband had filed and suspended his benefits but died before he could collect them.
No, I replied. The lump sum option is only available to someone during life, not to survivors.
Here's the long answer from a Social Security spokesman: “If a number holder dies during the period of voluntary suspension and a survivor requests that benefits for months prior to the death are reinstated and paid as an underpayment to the estate, we will not reinstate the benefits. Generally, only the person who requested the voluntary suspension may request reinstatement.”
However, the widow would be entitled to survivor benefits worth 100% of what her late husband was entitled to at the time of his death — including any delayed retirement credits. Assuming her husband filed and suspended his benefits at his full retirement age of 66 and died two years later without collecting benefits, the widow's survivor benefit would be worth 116% of her husband's full retirement age benefit amount.
Widows and widowers can collect survivor benefits as early as age 60 but they would be worth just 71.5% of the deceased spouse's benefit compared to 100% if collected at full retirement age or later. But survivor benefits are frozen in time and don't grow larger if collected after full retirement age. Survivor benefits do not earned delayed retirement credits.
(Questions about Social Security? Find the answers in my e-book.)