Collect Now File and Suspend (CNFAS) Social Security Claiming Strategy
Collect Now File and Suspend Social Security Claiming Strategy (CNFAS)
I had a reader ask me if they could file for benefits at age 63 for his wife, and then get spousal benefits for her at age 66 based on his Social Security earnings history. He wanted to "file and suspend" till age 70. This is a great question, and is one of the little known and misunderstood claiming strategies for married couples.
Here's my response to his question:
This strategy works best for a married couple where one of the spouse's earned benefit is significantly greater than the other spouses earned benefit, such is the case for you and your wife.
I can't run exact numbers from the information provided, (send it to me and I will) but here is an example of how this works:
Husband's Primary Insurance Amount (PIA) at age 66 is 2,000. Wife's PIA at age 66 is $700. At age 62, (they are both 62) she files and starts claiming a reduced benefit based on her earnings of $525/month.
At age 66, he files and suspends his monthly benefit as you are proposing. His wife can now collect her spousal benefit ($300) on top of her current SS of $525/month!
The equation for Spousal Benefits is as follows:
50% of higher earner PIA
- lower earner PIA
+ lower earner monthly benefit
In this example, the wife's total spousal benefit at age 66 would be $825, ($1000 PIA husband-$700 wife PIA + $525 lower earner monthly benefit.)
So far so good?
The wife is getting $525/month from 62-65, gets the increased spousal benefit of $825/month from 66 + while the husband lets his benefits cook. At age 70, he claims his SS at $2,640/month, having benefited from the Delayed Retirement Credit.
If he (you) dies, then the wife now gets the Survivor Benefit of $2,640 which represents the husband's full amount.
Cumulative combined lifetime benefits are substantial, and if you did die at 76, and she lived to be 92, you would have collected over $860k from this strategy versus $720k if you both claimed at 62.
Send me your numbers if you want and I can walk you through the math for your situation.
Remember, Social Security is just part of the equation to optimize your retirement income. You should be running the numbers on the following as well:
1. When you start taking SS, how much of it will be taxable?
2. How much of it will be taxable 10 years from now when IRA distributions kick in?
3. What are your projected Medicare surcharges and penalties?
4. What other income will you have in retirement?
5. Have you ran the numbers to include all of your health care expenses in retirement? Long Term care, Medicare premiums, supplements, deductibles, RX, ect.?
6. What will your taxes look like?
7. Investment assets? IRAs? 401(k)s? Pensions?
8. Life Insurance?
9. Mortgages? Reverse Mortgages? (yes this is a powerful income tool that does not count towards SS and Medicare penalties)
10. Do you have inflation adjusted guaranteed retirement income for life?
11. What are you hidden internal fees and expenses in your investments?
12. How much risk are you taking?
You get the idea......times are changing, and my guess is with your earnings history that you are going to be deemed "affluent" and guess where Washington is going to get its money to pay for the underfunded SS and Medicare plans? You guessed it....from people like you.
Well, that won't be the case if you work with a good nerd wallet advisor that can show you how to optimize all of these things to avoid those additional fees, taxes, penalties, and expenses. Run the numbers, and chose the optimal plan backed by solid math and financial science.
Good job on living to 63! Let's make the money last another 35+ years!
The Moral of the story is...
Social Security planning is important. For crying out loud, for most retirees, it is the single largest asset that they have in retirement. It exceeds the value of their house, IRA assets, etc. Looking at the cumulative lifetime income, in this strategy alone saved this couple several hundred thousand dollars.
I may follow up with this posting with "the rest of the story" so show how we optimized and integrated questions 1-12, but proper retirement planning is comprehensive, it looks at the whole picture and maximizes returns, minimizes expenses, reduces risks, and increases income.