Here’s one of the best retirement ideas I have ever heard, and it comes from, of all places, the ultimate puzzle palace, Social Security.
It’s called file and suspend. You file for benefits at age 66 – this only works at age 66 or older – and immediately suspend your payments. Not delay, suspend.
Sounds silly, I know. Why file and then suspend?
Well, consider this. When you do this, your payments continue to grow up to the max of 132% of your age 66 benefits at age 70. And your monthly payments would accumulate as a contingency fund you can tap into at any time.
Yes, the payments you would have received from ages 66 to 70 accumulate in a contingency fund that is available whenever you need it. Or you can simply wait until age 70, not touch the accumulated cash, and still receive the maximum monthly payment as if you did nothing at age 66.
So how does this benefit you? Let’s say you don’t need your benefits at age 66 but would like to have a fund on the side in case you have a big expense later in life or an investment idea – or how about a college fund for a grandchild?
And, if during the same period, you don’t exceed the tax threshold for your benefits to be taxed, the fund is also tax-free. Make sure you check with your tax advisors about this aspect.
As I said, you can do this only at age 66 or older, and if you don’t tap into the fund it is as if you never touched your benefits.
You can start and stop at any time after age 66 and, even more amazing, you can do this over the phone.
I’m sorry if I sound cynical, but this sounds almost too reasonable to be from a government agency, especially Social Security.
In fact, there are even more options with file and suspend than I don’t have time to talk about here. And, most planners, if you don’t need the money right away, will encourage you to do it.
Now, I am not a Social Security expert; I’m not sure there is a single person anywhere who knows all the ins and outs of this agency. But before you do anything, talk to the experts at Social Security to make sure you have all the details.
File and suspend: a really nice option.