Many folks are waiting to apply for their Social Security benefits past their Full Retirement Age (FRA). They are doing so for a number of reasons, perhaps because they are continuing to work and don’t need their benefits currently, or perhaps they are doing so to allow their benefits to receive “Delayed Retirement Credits” of 8% per year from their FRA to age 70. Regardless of the reason, if you are deferring receipt of your Social Security benefits beyond your FRA, you may want to consider a “File and Suspend” strategy at your FRA. “File and Suspend” means you contact the Social Security Administration at your FRA and tell them you want to file for your Social Security benefits but suspend receipt until a future time. Doing so will provide you and/or your spouse the following options: 1. Your spouse can then elect to receive a Spousal Benefit based on your record. Assuming your spouse is also at their FRA, their Spousal Benefit will generally be one-half of your Primary Insurance Amount (your benefit at your full retirement age). 2. Even if your spouse doesn’t want or need to claim Spousal Benefits, a “File and Suspend” strategy allows you the ability to get lump sum benefits retroactive at a later time, back to the date you filed and suspended, if you change your mind. If you did not “File and Suspend”, retroactive benefits are limited to six months, or back to your FRA if it has been less than six months. The SSA regulation that authorizes the lump sum benefits back to your original “File and Suspend” date can be found at: GN 02409.130 Voluntary Suspension Reinstatement “The Numberholder who requested suspension may request at any time to have benefits reinstated effective for any month of the suspension period.”
“File Suspend” process can only be completed at or after your FRA. Please see “What is Your SS Full Retirement Age” blog entry to determine your FRA if you are not certain. Watch out for possible income taxes on your SS benefits. A retroactive lump sum payment may increase your Adjusted Gross Income above the threshold making your SS benefits taxable. Assuming you are married and filing jointly, if your AGI plus provisional income is over $44,000, up to 85% of your SS benefit is taxable; if between $32,000 – $44,000, up to 50% is taxable.
A retroactive lump sum benefit may increase your Medicare Part B premium, for one year, two years following the receipt of your lump sum. In 2015, couples whose Modified Adjusted Gross Income(MAGI) is over $170,000, pay more than $104.90 per moth for Part B premiums; their monthly payment is between $146.90 and $335.70, depending upon their MAGI. A similar increase, as illustrated above for Part B, applies to Part D (Rx) as well. Part D premiums are between $12.10 and $69.30, for married couples filing jointly whose MAGI is over $170,000.