File and Suspend: A Flexible Social Security Strategy
The Social Security system may seem complex, but understanding your claiming options could help increase your benefits. One strategy to consider is “file and suspend” (sometimes referred to as “voluntary suspension”).
The basic concept is to file for benefits at full retirement age (66 to 67, depending on year of birth) and immediately suspend benefits before receiving any payments. This allows your spouse to be eligible for spousal benefits; meanwhile, you earn delayed retirement credits (up to age 70), which increases your future benefit. It also provides flexibility for retroactive benefits regardless of marital status.
Options for Married Couples
The following hypothetical examples are used for illustrative purposes only and assume a full retirement age of 66 for both spouses. Actual benefit amounts and results will vary.
Jeff is eligible for a $2,000 monthly Social Security benefit at age 66 but wants to continue working until age 70. His wife, Meg, is eligible for a $700 benefit at age 66 based on her own earnings. If Jeff files and suspends his benefits upon reaching full retirement age, Meg would be eligible for a $1,000 spousal benefit at age 66 (50% of Jeff’s full retirement benefit). Jeff could continue accruing delayed retirement credits, increasing his benefit at an 8% annual rate, and at age 70 his monthly benefit could reach $2,640. (See chart for benefit percentages.)
If Meg is younger than Jeff, she could claim a spousal benefit as early as age 62 (assuming Jeff has filed and suspended his benefits). However, her spousal benefit would be permanently reduced. For example, at age 62 her spousal benefit would be only $700 (35% of Jeff’s full benefit).
Todd and Jill both want to continue working past full retirement age to earn their maximum benefits. If Todd files and suspends at age 66, Jill can file a restricted application for a spousal benefit at age 66, and both can continue working and earning delayed retirement credits, up to age 70.
Of course, the roles could be reversed in all these examples. However, the spouse who files and suspends cannot later apply for spousal benefits.
Under standard filing rules, an individual who files for Social Security after reaching full retirement age can request a lump-sum payment for up to six months of retroactive benefits. For example, if you file at age 66½, you could request a lump sum equal to the benefits you would have received had you filed at age 66; if you filed at 67, the payments would go back to 66½. Future benefits would be based on the lower monthly benefit that would have been set at the earlier date.
If you file and suspend benefits and later request to reinstate them, you could request a lump-sum payment equal to the benefits you would have received since the time you filed. For example, if you filed and suspended at age 66, you could receive two years of retro-active payments at age 68. This might be helpful for someone who faces a change in health or other situation that makes it more important to claim a lump sum than to receive higher monthly benefits going forward.
Medicare and HSAs
When considering the file and suspend strategy, you should be aware that the act of filing — even if immediately suspending benefits — triggers automatic enrollment in Medicare Part A. Because Part A hospital insurance is premium-free for most people, this may not be an issue. However, if you have a high-deductible health plan with a health savings account (HSA), you can no longer contribute to the HSA once you sign up for Medicare.
Social Security decisions can have a lasting impact on your financial situation, so you may want to seek professional guidance before taking action.