by Michael Napier
Tuesday, October 23, 2012
in Financial Planning
| Comments (1)
Receiving Lump Sum Social Security Payments through “File and Suspend”
I recently attended a social security seminar conducted by a retired social security associate of 35+ years. He reminded me of a social security strategy that I thought would be beneficial to repeat.
The strategy is called “File and Suspend” (aka “Claim and Suspend”). It is available to anyone who has reached their full retirement age. Typically, someone would “file and suspend” if they were married and have a spouse who would like to claim their “spousal benefit,” but the main beneficiary wishes to continue working and would like to increase their future benefit by the 8% per year “deferred retirement credit”. (A person can typically receive the higher of their own benefit or ½ of their spouse’s benefit). But a little known fact about the “file and suspend strategy” is that after one “files and suspends” payments, the main beneficiary can go back to the Social Security Administration at a later date and request a lump sum payment of all back payments (if needed).
For example, I could file & suspend on my 67th birthday. If I wanted, at any-time between my 67th birthday and my 70th birthday, I could request a check for the back payments from my 67th birthday and start receiving my monthly social security benefit as to what they would have been as of the date that I originally suspended them (no deferred retirement credit). So, in this example, If I were to receive $2,000/month payments (at age 67) and I asked for a lump sum payment on my 69th birthday, I would receive 2 years back payment (near $48,000) and would start receiving my monthly benefit of $2,000/month thereafter.
This strategy may be beneficial for someone who has received the unfortunate news of bad health or if a large unexpected debt has occurred.
A few other pointers on this strategy:
- If you choose not to “file and suspend” near your full retirement age and decide for a lump sum payment at a later date, the payback period is only 6 months (not “filing and suspending” back-dates the lump sum by only 6 months).
- Social Security will not pay you interest on your money and you will lose the 8% per year “delayed retirement credits” (inflation increase) and will return back to the payment promised when you originally “filed and suspended”.
- The Social Security Administration can “file and suspend” your payments based off a verbal request – no paperwork is involved (although I recommend having a “paper trail”).
The Social Security Administration typically will not give you strategies or advice.