What you need to know about “file and suspend” for Social Security benefits

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Q. I’m going to be eligible for Social Security benefits soon, and I’ve heard about a strategy called “file and suspend.” How does that work, and how do I know if it’s good for me?

A. “File and suspend” is a great way to get more out of your benefits.

The strategy increases Social Security claiming options for qualifying couples by allowing them to take advantage of spousal benefits and delayed retirement credits. The “file and suspend” rule was added to Social Security in 2000 as part of the Senior Citizens Freedom to Work Act, said Anthony Vignier, a certified financial planner with Vignier Investment Group in Kearny.

“Under current law a spouse cannot claim a spousal benefit unless the main beneficiary reaches full retirement age and claims benefits first,” Vignier said. “To use the `file and suspend’ strategy, the main beneficiary can file for benefits, and then immediately suspend receipt of those benefits. This allows the other spouse to begin collecting a spousal benefit based on the main beneficiary’s earnings record.”

By suspending the main beneficiary’s benefit, the benefits continue to grow until they are ready to begin collecting. This strategy will also result in higher survivor’s benefit, Vignier said.

Plus, the main beneficiary — the one who suspended benefits — will have a higher payout when he claims because his benefit will continue to grow by about 8 percent a year, said Altair Gobo, a certified financial planner with U.S. Financial Services in Fairfield.

Gobo offered this example: Joe and Mary, a married couple, just turned 66. Mary wants to retire while Joe wants to work to age 70. Joe’s monthly Social Security benefit would be $2,000 if he claimed at age 66, and Mary’s monthly retirement benefit at 66 is $900. If Joe files for his own retirement benefits and then immediately suspends receipt of those benefits — allowing his Social Security benefit to continue to grow to age 70, at which time his benefit would be $2,640. Mary can now claim spousal benefits of $1,000 per month, while letting her own benefits grow to age 70. At age 70, Mary’s monthly retirement benefit, which will grow due to delayed retirement credits, will be $1,188. At that time she can claim the higher retirement benefits on her own record.

Vignier said the “file and suspend strategy” can also be useful for couples where only one person has reached full retirement age. They can use the “file and suspend” strategy to increase the younger spouse’s monthly benefit by drawing a spousal benefit in addition to his or her own benefit. For example: John is 66 and at full retirement age. Mary will be 62 in two months. John’s benefit is $2,000 a month. Mary has a limited work history. Her benefit at age 62 will be $400. John wants to work until age 70. John can file for his own retirement benefits and then suspend receipt of them until age 70. Mary can now claim spousal benefits at age 62 and get her own benefit of $400 along with a percentage of the spousal benefit available to her from John.

Before considering a “file and suspend” strategy, you should review your finances to make sure this strategy is suitable for you, Vignier said.

“Each case is different. Before suspending benefits, make sure you will have enough income to pay your living expenses now while waiting for higher payments in the future,” Vignier said.

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This story was first posted in November 2014.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.