Applying for Social Security is a retirement ritual in America, and a feature added in 2000 gives retirees greater flexibility over the start of this benefit. After filing for Social Security between the ages of 62 and 70, individuals can elect to suspend their payments until a later date. Because monthly benefits rise along with someone’s initial filing age, there could be scenarios when it makes sense to elect to not receive payments until later.
For example, let’s say that Dave files for and begins receiving Social Security payments at his full retirement age (66). Fortunately for him, Dave lands several opportunities to consult for his former employer and state government – he no longer needs the income from Social Security right away. In this case, Dave could elect to suspend his payments until a later date, at which point he could choose to either receive the accumulated benefits as a lump sum, or he could receive higher monthly payments going forward.
Another scenario where filing and suspending might make sense involves maximizing spousal benefits. The Social Security Administration allows husbands and wives to choose between receiving payments based on either their own payroll taxes, or their spouse’s taxes. The spousal benefit is capped at 50% of the higher-income spouse’s benefit.
Let’s say that Tom and Sally are both age 66, and Sally would like elect to take the spousal benefit based on Tom’s benefit amount. However, Tom would really like to keep working until age 70, and would like to delay his Social Security income until that point. In this case, Tom could apply for Social Security and immediately suspend his payments until a later date. Because Tom filed, Sally could begin receiving her spousal benefit now, even as Tom elects to wait until later to receive his.
It’s worth remembering that you have choices about when you apply for and begin receiving Social Security benefits, and those choices can have a material impact on your income in retirement. Even a few hundred dollars a month can add up to a significant additional benefit over your lifetime.