Retirement Strategy – ‘File and Suspend’ Social Security

file and suspend retirementMany of my clients are asking me about a Social Security retirement strategy commonly referred to as ‘File and Suspend’.  One thing I know for sure is if more than one client asks me the same question it is a good bet many Americans would like to know the answer.

‘File and Suspend’ refers to a Social Security beneficiary who has reached full retirement age (66 for those born between 1943 and 1954) filing for their benefits then immediately suspend receipt of those benefits until some future date. By doing this, his or her spouse can claim a spousal benefit and the main beneficiary can let his or her own retirement benefit grow at 8 percent per year.

In addition, if both spouses have reached full retirement age, it is possible for the spouse’s own benefit to grow due to delayed requirement credits if he/she elects to receive free social security spousal benefits (also referred to as the restricted application option).  Here is an example.

Suppose a married couple, Ben and Jill, have turned 66. Jill wants to retire at 66, while Ben wants to work until 70. Ben’s monthly Social Security retirement benefit would be $2000 if he claimed them at age 66. Jill’s monthly retirement benefit at age 66 is $900. If she could claim spousal benefits, her monthly check would be $1000, one-half of her husband’s age-66 benefit, but Jill can’t claim a spousal benefit unless Ben files for his own retirement benefits. Ben wants to let his Social Security benefits continue to grow until age 70, when his benefits will grow to $2640 per month (This increase comes from Ben’s “delayed retirement credits.”)

Taking advantage of the ‘file and suspend’ option, Ben can file for benefits at age 66 and then immediately suspend receipt of those benefits. His monthly benefits will, as a result, continue to grow, so that he can get the delayed retirement credits and receive at least $2640 a month when he claims benefits at age 70. With Ben ‘filing and suspending,’ Jill can now claim social security spousal benefits of $1,000 a month while letting her own retirement benefits grow until age 70. At age 70 her monthly retirement benefits, which will grow because of delayed retirement credits, will be $1188 (=$900×1.32). At age 70 she can claim the higher retirement benefits on her own record.

The ‘file and suspend’ strategy is also potentially useful for couples in which only one person has reached full retirement age. In this case, the benefit of the main beneficiary will continue to grow, but the spouse’s benefit will not. The advantage to the spouse, however, is that he or she has the opportunity to draw a spousal benefit in addition to his or her own benefit when the file and suspend retirement strategy option is utilized.

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