Monday, October 14, 2013

Social Security Spousal Benefits Part 2: File & Suspend Strategy

In our recent posts, we've provided some basics on Social Security and Spousal Benefits.  Armed with that information, let's start taking a simple look at some strategies that may allow married couples to more effectively maximize their lifetime Social Security benefits.  We'll begin with a strategy often called "File and Suspend." (If you haven't read the previous posts, you are encouraged to do so first before reading on.)

As we’ve already noted, you are always entitled to a Social Security benefit based on your own earnings record. As a spouse, you are also entitled to a benefit based on your partner’s earnings record, up to half of their Primary Insurance Amount (PIA), called a Spousal Benefit. (You receive the greater of your own benefit or half of your spouse’s, but not both.) However, in order for you to receive a Spousal Benefit, your spouse must have filed for Social Security benefits themselves. (Note: This is not the case when claiming on an ex-Spouse, but that’s a topic for another post.)

This is when File and Suspend can come in to play. While it has many possible applications, it is most often used when one spouse is the primary earner and the other spouse has little or no work history of their own.

Let’s revisit the case of Woodrow and Edith Wilson. Edith is age 66 (her FRA) with a PIA of $1000. Woodrow is age 66 (his FRA) with a PIA of $2400.

If Edith wants to file for Social Security benefits today, she would get 100% of her PIA as she is Full Retirement Age (FRA), so $1000. However, she would also be eligible for Spousal Benefits, which would bring her monthly total to $1200, but only if Woodrow has filed for benefits himself. If Woodrow wants to delay his benefit in order to take advantage of Delayed Retirement Credits (DRCs), he can File and Suspend.

Essentially, Woodrow files for Social Security benefits and immediately suspends them, receiving no payments. This allows Edith to claim the Spousal Benefit of $1200, rather than just $1000. At the same time, Woodrow’s benefit continues to increase. At age 70, Woodrow can then elect to receive his benefits and, instead of $2400, will now get $3168 thanks to the 8% annual Delayed Retirement Credits.

Bear in mind that if Edith were not her Full Retirement Age, she is still eligible for her own benefit and a Spousal Benefit, but both are reduced. Further, before Full Retirement Age she is deemed to be filing for any and all benefits, so if Woodrow had filed himself, she would get the reduced Spousal Benefit even if she didn’t intend it.

While we are simply providing a general overview, the reality is there are many considerations when it comes to filing for Social Security benefits. Please feel free to contact us directly if you have specific questions relating to Social Security and your overall retirement plan. 


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