Another reason to file and suspend Social Security benefits

Thank goodness for Investment News readers who come up with such intriguing questions. By pushing the envelope on what I know about Social Security claiming rules, their queries sometimes send me scurrying to the Social Security Administration for answers and we all learn a little bit more as a result.

Just before Christmas, a reader wrote to me asking what would happen if he filed and suspended his Social Security benefits at his full retirement age of 66 and later decided he would like a partial lump-sum payout? Could he request one?

As regular readers of this column now know, it is possible to lift a voluntary suspension of retirement benefits and request a lump-sum payment of benefits back to the date of suspension.

This recently discovered use of the file and suspend strategy makes particular sense for single people who, unlike married couples, don't have to worry how their claiming decision might affect spousal or survivor benefits.

For single people especially, the file and suspend strategy can be used as an insurance policy.

The premise is to file for benefits at full retirement age, currently 66, and then immediately suspend benefits with the intention of earning delayed retirement credits worth 8% per year for every year they postpone collecting benefits beyond full retirement age, up to 70.

But anyone who files and suspends benefits can change their minds and request a lump-sum payout back to the date of the original suspension. Of course, if they did, they would forfeit the delayed retirement credits earned during that period.

Why would you want to file and suspend and then request a lump sum?

Let's say you're single and had expected to live a long time, and at 68 receive a terminal diagnosis. Longevity is suddenly the least of your worries and a lump sum payout might come in handy. Going forward, you would collect Social Security benefits based on your age when you suspended benefits, not larger benefits based on your current, older age.

Married beneficiaries may also file and suspend, but probably would be more concerned about maximizing their retirement benefits and subsequent survivor benefits by accruing delayed retirement credits rather than requesting a lump sum payout.

But what about receiving a partial lump sum benefit?

“What if you file and suspend at full retirement age and then three years later wish you had a lump sum? Can you request a partial payout?” the reader asked in an e-mail. “Maybe just a year's worth? “

Frankly, I didn't know the answer, so I asked my contacts at the Social Security national press off