File and Suspend
“File and suspend” is a strategy that married couples may choose to utilize in order to maximize their social security benefits. Presently a married individual can receive social security benefits for his/her own work or “spousal benefits” based on the work history of his/her spouse.
At the age of 62 an individual can apply for social security benefits but the applicant will receive a smaller amount of benefits than she would have received at full retirement age. (For those people born in or after 1938, full retirement age is being phased-in to the age of 68) However, rather than applying for social security based on her own work history, which would result in her receiving reduced benefits, the applicant may elect to receive spousal benefits, which may be up to 50% of the benefits that her spouse is entitled to receive. In order to be eligible for spousal benefits though, the applicant’s spouse had to have had at least filed for social security benefits too.
However, the spouse may not be ready to give up working, particularly when each additional year of work results in an 8% increase in the spouses own benefits. File and suspend however resolves this dilemma – by permitting the applicant to receive spousal benefits while permitting the spouse to work and accrue the additional credit for his/her own benefits.
How File and Suspend Works
First, the spouse must be at full retirement age, which currently is 66 years old. Next the spouse must file for his/her Social Security benefits, and then immediately suspend receiving those benefits for a later date. This enables the applicant – who is at least 62 years old - to apply for spousal benefits.
Here is an Example:
Bill, husband, is 66 and wants to work until he is 70 years old. Jane, wife, is 62 and would like to retire as soon as possible. Bill can receive $3000 per month if he decides to take his social security now. If Jane applies for her own benefits at age 62, she will receive $1200 per month, and if she waits until full retirement age she can receive $1600 per month.
BUT if Bill files and suspends now, Jane can claim spousal benefits that can be up to $1500 per month (50% of Bill’s benefits). Having elected only to take spousal benefits, when Jane reaches full retirement age, she will be entitled to receive 100% of her own benefits, which would be $1600. Finally, Bill can continue to work and his benefits will grow about 8% every year that his benefits are suspended.
File and suspend is effective because –
· it allows an applicant to retire as early as the age of 62;
· the applicant receives a higher amount of spousal benefits than the applicant would have received in reduced benefits for his/her own work;
· the applicant will still be eligible to receive 100% of his/her own benefits when the applicant reaches full retirement age;
· the applicant’s spouse can continue to work; and
· the spouse’s own benefits will grows around 8% every year that the benefits are suspended.