Fifty-two percent of married Social Security beneficiaries receive at least half their total income from Social Security. Optimizing the claiming decision is critical to making sure they maximize their income. I want to take an opportunity to explain one way to do that: the “file and suspend” strategy for married, two-earner households.
This approach has the potential to provide a couple with income from the Social Security system for several years without reducing their long-term benefits. The strategy is well understood by financial planners, and yet many individuals are still unfamiliar with it.
To start, you have to understand how benefits work. If you’ve paid into the system for at least 10 years (40 quarters), you qualify for your own benefits at age 62. Benefits are reduced when you claim early. The longer you wait to claim your benefits, until age 70, the higher your monthly benefit will be. Waiting from the full retirement age (age 66 for retirees born between 1943 and 1954) until age 70 can increase benefits by 8 percent per year.
If you’re married, you may also qualify for spousal benefits. At your full retirement age you can choose to receive either one-half of your spouse’s full retirement age benefit or your own earned benefit. Again, you could choose to get a smaller fraction of your spouse’s benefit at early retirement ages. However, these spousal benefits do not increase if you or your spouse waits until after full retirement age to collect.
Here’s where “file and suspend” comes into play. You can collect a spousal benefit while delaying your own earned benefit. Let’s say you’ve decided that you and your spouse want to wait until age 70 to collect individual benefits. This will maximize your annual income and has been referred to by many as “one of the best deals around” because it provides increased guaranteed lifetime income for you and your spouse.
While you and your spouse are waiting to collect your own earned benefits, one of you can actually collect spousal benefits on the other’s earnings record, without sacrificing your own earned benefit. Only one of you can do this, so it often makes sense for the lower earning spouse to collect on the higher earning spouse’s earnings record. Or, if there is a difference in age, it may make sense for the younger spouse to collect on the older spouse’s earnings record, once the younger spouse reaches full retirement age. The point is that you can collect a spousal benefit while delaying your own benefit, so long as you’re both of full retirement age.
You and your spouse still get your full delayed retirement benefits at age 70, but you’ve just received up to four years of benefits from Social Security! The key is to coordinate with your spouse and tell the benefits office that you want to “file and suspend” your benefits and collect the spousal benefit. From the Social Security Administration (SSA):
“If you and your current spouse are full retirement age, one of you can apply for retirement benefits now and have the payments suspended, while the other applies only for spouse’s benefits. This strategy allows both of you to delay receiving retirement benefits on your own records so you can get delayed retirement credits.”
One final note on the file and suspend strategy: If you claim spousal benefits before you and your spouse reach full retirement age, you will have been “deemed” to have claimed your own benefit and you will not be allowed to delay your own benefit. Make sure that you and your spouse are full retirement age to take advantage of this loophole.
Michael Kitces does an excellent job of breaking it down further.
To estimate your benefits, check out the Social Security website.
To get your full retirement age and adjustments based on when you collect.
More info from SSA.
Why you should delay benefits (Center for Retirement Research).
Another article that suggests delaying benefits (Journal of Financial Planning).
Another example of the strategy.