Maximizing Social Security Retirement and Disability Benefits Part One

Methods to Maximize Social Security Disability and Retirement Benefits

Part one: What is File and Suspend?

This is my first post in my series on social security disability and retirement strategies to increase monthly benefits. In my first two posts, I will try to explain the concept of file and suspend as a strategy to increase retirement benefits and in the second post, I will address the controversy surrounding this option. In my third post I will address the method of dual filing for social security disability and retirement to maximize benefits for those forced to retire early due to disability.  

File and suspend is a strategy used by married couples to increase retirement benefits. It’s easier than it sounds. Here’s how it works:

The spouse with the higher retirement benefit known as PIA (the formula for calculating benefits is called the Primary Insurance Amount or PIA) files for social security benefits at full retirement age, then immediately files a notice to suspend payment of those benefits. In many households the higher earner is the husband, so he would file for retirement at his full retirement age (as opposed to early retirement), but he would opt out of taking his actual payment.

This allows the spouse with the lower benefit/PIA to file for a spousal benefit, which is equal to half the benefit of the higher earning spouse. In my example, where the husband files first, this means his wife would then file to take her spousal benefit (not her own benefit) which is based on her husband’s rate of benefits. This would allow her to take one half of her husband’s benefit without requiring him to take his benefit.

According to Mark Miller of Reuters, in an article published by MSN Money (3/25/2014), "That gets some benefit flowing to the household while the husband continues to earn income toward even higher benefits later on when he files to start payments, perhaps as late as age 70. When the husband finally retires and begins taking his benefits, the wife then converts to her own full benefit based on her PIA now as opposed to her husband’s. (note: the spouse can convert her full benefit only if she waits until her FRA (Full Retirement Age) to file for a spousal benefit)."

This way, the couple can begin taking income into the household based on the higher social security retirement benefit, while the higher wage earner continues to earn wage and increase his benefit rate. The lower earning spouse will get less income for that time period, (between file and suspend and her husband’s actual retirement), but she still will be able to take advantage of her full benefit rate when her husband retires.

It may not seem obvious, but by doing the math, couples using this strategy can come out ahead with higher individual benefits for the rest of their lives. Mark Miller goes on to explain this strategy still works if the higher wage earner dies first, in that case, the "widow then converts to a survivor benefit, equal to 100% of her spouse’s benefit."  Couples can save thousands over their lifetime by employing this strategy, but even more important is the fact that the lower wage earner will have effectively maximized her benefit toward the end of her life when she is most likely to have exhausted other resources and potentially have a lower rate of return.

In part two of my series on social security disability retirement strategies to increase benefits, we will look at the future of this loophole and who might benefit while it lasts.