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File and Suspend: An Opportunity to Increase Social Security Benefits

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There is a lot more to the Social Security Administration than simply filing to collect a check at age 65.  The rules of the system can be complex, and benefits depend on when one files, marital status, work history, and full retirement age.   In this post we will review a strategy called “file and suspend.”

In order to take advantage of Social Security planning strategies, it is helpful to understand some common phrases and rules:

  • Primary Insurance Amount (PIA): The calculation of monthly benefits at full retirement age based on the highest 35 inflation-adjusted years of work history.
  • Full Retirement Age (FRA): The age at when you can collect full retirement benefits.  Full Retirement Age is between ages 65 and 67 and depends upon year of birth.
  • Delayed Retirement Credits (DRC): An 8% per year increase in benefits for waiting past full retirement age to collect.
  • Spousal Benefits:  A spouse is entitled to collect 50% of their partner’s benefits if the dollar amount is higher than the full amount of their own benefit. 

The “file and suspend” strategy has two primary goals.  The first goal is to allow the lower-earning spouse to begin collecting the highest benefit possible.  The second goal is to allow the spouse with the higher earnings record to benefit from delayed retirement credits.

Spousal benefits can only be claimed if the spouse whose record is to be claimed upon has filed for benefits.  Therefore, the spouse with the higher PIA files for benefits and immediately suspends his or her payments.  The spouse with the lower PIA then files for spousal benefits based on the higher-earning spouse’s record.  Let’s take a look at an example:

John and Sally are a married couple, and John’s PIA is $2,000/month.  Sally’s PIA is $700/month.  At John’s full retirement age, he files and immediately suspends his payments.  Sally files for spousal benefits based on John’s record.  Now, instead of getting benefits of $700/month, Sally’s benefit is $1,000/month.  In addition to increasing Sally’s monthly amount, John is increasing his own future payout by 8% per year until age 70.

A few important notes:  In order to suspend benefits and earn DRCs in the above example, John must have attained his FRA.  Also, if Sally takes benefits before her own FRA, her payments will be reduced.  However, the strategy will still benefit Sally even if she does collect early, as her payments are still based off the PIA amounts as illustrated in the example.  Lastly, the Social Security Administration is gender neutral; therefore, the file and suspend strategy has the same impact regardless of which spouse has the higher earnings record.

There are many complexities to Social Security retirement benefits.  The choices about when and how to collect benefits require individual planning.  We recommend consulting with a Certified Financial Planner™ to address your specific goals.

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