The so-called “file and suspend” strategy is an excellent method of maximizing Social Security benefits. Essentially, it is a way for married couples to get the combined effects of delayed retirement credits and spouse’s benefits.
The file and suspend strategy was born as a byproduct of the 2000 Senior Citizens Freedom to Work Act. It works best with one primary breadwinner and a spouse of nearly the same age who earned considerably less during his or her working lifetime,
Spouses can file for spousal benefits of up to 50% of their partner’s benefits if those benefits are greater than benefits based on their work record. However, they cannot file for spousal benefits until their partner files for benefits first. With the file and suspend strategy, the primary breadwinner files a claim but elects to suspend payments until some later date, and he or she continues to work. Payments will automatically begin at age 70 if no action is taken. Meanwhile, the breadwinner’s spouse files for spousal benefits, also delaying his or her own benefits.
While the couple is living off (and investing, to some degree) the breadwinner’s income and the spouse’s spousal benefits, both the breadwinner and spouse are racking up delayed retirement credits – resulting in an increase of up to 8% in the benefits based on their own work records for each year of delay. Once both spouses reach age 70, the breadwinner receives his or her full benefits and the spouse can switch to his or her own benefits if they are now higher than spousal benefits thanks to the delayed retirement credits that he or she has accumulated.
It is best for both the breadwinner and the spouse to be at full retirement age (FRA), which will be either 66 or 67 depending on birth date. The breadwinner must be at FRA to execute this plan, otherwise the benefits are significantly reduced. The spouse can be between age 62 and the FRA, but benefits are discounted and locked in at the lower rate.
If the spouse outlives the breadwinner, he or she can convert to survivor’s benefits at that time.
The breadwinner can change his or her mind and either get a lump sum payment for the unclaimed years and take standard benefits, or take the increased monthly benefits based on the delayed credits earned to date.
There are some potential downsides to consider:
- Income – If the breadwinner delays benefits but is working only part-time or not at all, it is important that the total income plus spouse’s benefits is enough to pay bills.
- Death – The ultimate downside in any case – but a spouse dying during the period of suspended claims results in unclaimed benefits for the delaying period.
- SSI Benefits – If you currently draw Supplemental Security Income (SSI), suspending your Social Security payments renders you ineligible for further SSI benefits.
- Medicare Part B – Since part B premiums are usually deducted from Social Security benefits, you will be billed directly instead. Make sure you take that into account when assessing costs.
File and suspend has been specifically targeted by the Obama administration, under the premise that the wealthy are exploiting the system. However, it also benefits the less wealthy – arguably, it is even more important as it provides a larger portion of benefits in inflation-adjusted form. If they do act, expect scaled income limits.
If you are not sure what the effects would be on your benefits, ask the Social Security Administration for clarification. (You may call, email or write to them for information, or personally visit a field office.) Meanwhile, keep tabs on the rules as you approach retirement age; if the benefits are still available and make sense for your family, by all means take them.