The “File and Suspend” Option May Allow Greater Social Security Benefits

By Kimberly Butler Rainen

At age 66, Social Security recipients have a lot of choices to make that can affect the level of benefits they receive. Most beneficiaries must choose between beginning to take benefits or postponing “retirement” until age 70, which means the loss of four years of monthly payments, but a 32 percent higher benefit for the rest of their lives. However, some married couples may, in effect, have their cake and eat it too through the so-called “File and Suspend” option.

The File and Suspend option permits a spouse to collect spousal benefits while both spouses’ own retirement benefits continue to grow. For this to work, the spouse with the higher earnings record files for Social Security benefits when he becomes age eligible and then immediately defers collection of those benefits, allowing the other spouse to collect a spousal benefit. Once the spouse who has been collecting spousal benefits reaches age 70, she can switch and begin collecting her individual benefit under her own work record.

An example can better explain how this works. Let’s assume that based on their own work records, at age 66 Mr. Smith is entitled to a monthly Social Security benefit of $1,000 and Mrs. Smith to $1,500. If they both defer to age 70, Mr. Smith’s benefit will increase to $1,320 a month and Mrs. Smith’s to $1,980, for a combined benefit of $3,300 instead of $2,500. In order to gain an extra $800 a month for life (not counting annual cost of living adjustments), they will have given up four years of benefits at the lower rate, or $120,000. With an increased benefit of $800 a month, it would take Mr. and Mrs. Smith 12.5 years, or until age 82 ½ to make up the difference and begin profiting from their decision to defer.

But by using the File and Suspend option, the Smiths can significantly reduce the costs of deferring. Under that option, Mr. Smith would begin receiving $750 a month in spousal benefits for a total of $36,000 over four years. This would reduce the benefits given up by deferring to $84,000 and permit Mr. and Mrs. Smith to begin profiting from their decision to defer at age 78 3/4, almost four years earlier.

Of course, financial need, health status and family longevity all play a part in decisions about when to begin drawing Social Security. But retirees should be aware that File and Suspend may be an option that permits them to have their cake and eat it too, at least to some extent.

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