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By Christine Benz | 05-13-2014 12:00 PM

How File and Suspend Works for Social Security Beneficiaries

InvestmentNews contributing editor Mary Beth Franklin explains how this filing strategy can benefit both couples and even single retirees.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com.

A Social Security strategy called file-and-suspend can be worth considering in many instances. Joining me to discuss this strategy is Mary Beth Franklin, a contributing editor at InvestmentNews, and she's also the author of a new e-book about Social Security planning.

Mary Beth, thank you so much for being here.

Mary Beth Franklin: Thanks for the invitation. I love coming to Morningstar.

Benz: One of the strategies that you frequently talk about in your work, and I know a lot of people look at when they think about Social Security planning, is what's called "file-and-suspend." Let's start out by discussing what is the strategy and how do you execute it?

Franklin: File-and-suspend is a really powerful strategy, particularly for married couples, to be able to maximize their lifetime Social Security benefits.

First of all, what is it? You are telling Social Security, I'm filing, but I want to immediately suspend my benefits. Why would you want to do that? It can trigger benefits for your spouse, assuming your spouse is old enough to collect benefits, meaning 62 or older. Or if you have minor dependent children in your household--defined as children under 18 or 19, if they are still in high school--you can file and suspend to trigger a benefit for them. In the meantime, your own benefit continues to grow at the rate of 8% per year between your full retirement age and 70.

Now, full retirement age right now is 66 for anybody born from 1943 through 1954. So, 66 is your magic age. To engage in file and suspend, the worker, that's you, has to be at least 66 to do so. You cannot do this if you claim benefits before 66.

Benz: Let's discuss a couple of situations where you think this strategy can be particularly effective. What types of couples should consider this sort of strategy?

Franklin: First of all, let's look at a married couple where you've got one spouse who is the bigger breadwinner. I'm going to say it's the husband, but frankly Social Security is a gender-neutral program; it could work either way.

But let's say this is Ozzie and Harriet. Harriet stayed home her whole life. Her only benefit she is entitled to is as a spouse. She does not have Social Security on her own work record. But her husband has listened to this conversation, and he knows the longer he waits to claim his Social Security benefit, the more it's going to be worth it. So, he likes that idea. But his wife really wants a benefit. So once he reaches 66, he can say to Social Security, I want to file and suspend, so my wife can collect her spousal benefits and mine will keep growing.

A spousal benefit is worth half of the worker's benefit if it's collected at full retirement age--less if it's collected earlier. So let's say, the husband is entitled to $1,000 a month at his full retirement age. The wife, if she was also 66--full retirement age--would be entitled to a benefit worth half that much, $500. She could collect as early as 62, but her benefit is going to be smaller. In this case, instead of a 50% benefit, it would be 35%. She'd get $350.

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