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File and Suspend in the Crosshairs?

Image courtesy of chanpipat at

Image courtesy of chanpipat at

Apparently in the President’s recent budget documentation there is a brief mention of a desire to curtail the availability of File and Suspend as an option for Social Security benefit filing.

The reason, it appears, is that the Obama administration views this option as one used only by high income folks to take advantage of the government with this valuable option.

The problem with that viewpoint is that it is used by folks of all income levels, and in fact if it is taken away this could cause some big problems for folks who can least afford to lose benefits. As if anyone can afford to lose benefits, right?

Here’s what happens with File and Suspend: a Social Security benefit recipient has a spouse and/or children that would be eligible for benefits based on his or her record when he or she files for benefits.  If he or she happens to be at or older than Full Retirement Age (FRA, age 66 for folks born before 1955, up to age 67 for folks born in 1960), he or she can file and immediately suspend his or her own benefits, allowing his or her spouse or young children to receive benefits immediately.  By suspending his or her own benefit, he or she will earn delayed retirement credits of 8% per year, which will later provide him or her with an enhanced retirement benefit.

This is exactly the same outcome for the spouse and dependents that would play out if the benefit recipient was to file and *not* suspend benefits – and actuarially the end result should be the same for the primary benefit recipient as well.  Where use of File and Suspend makes a big difference is much later.  In the event of the recipient’s untimely early death, the spouse will receive a much enhanced survivor benefit.  And if the recipient lives a long, healthy life, he or she will enjoy the enhanced benefit as well.

I can’t see where this is an issue of higher income versus lower income, as has been reported.  I believe that the File and Suspend option is being unfairly vilified without complete understanding. The fact that folks with higher incomes have been more likely to choose File and Suspend as an option shouldn’t be cause to eliminate the option for everyone.  As I mentioned, actuarially this should have little or no effect.

The likely reason that higher income folks have been more likely to choose this option is because higher income folks are more likely to seek guidance when filing for Social Security benefits – but again, the word is getting out about this option and more folks are choosing it (once they talk the SSA folks into understanding it!).

As well, often folks with lower incomes and future Social Security benefits may not be in a position to delay receipt of benefits, making File and Suspend a good idea but not viable.

I hope that this gets dropped.  Doing away with File and Suspend will have no beneficial impact on the future viability of the Social Security system, in my opinion.  All this is likely to do is make a lot of software developers rewrite their software to remove this option.  If looking for provisions to remove in order to make the system a bit more cost-effective, perhaps the restricted application should be considered.  This one may actually cost the system a bit extra, but so few people even know about it that it’s unlikely.

The real answer is to either re-do the overall calculations, put in place more effective means testing, and/or change the tax structure, perhaps to include all earned income instead of the capped income as the system works now.  Until we face these factors and make real changes, we’re likely to continue on the path to unsustainability within the Social Security system.

Notify Social Security of Major Changes in Your Life

Change happens

You know how, after you’ve put your kids through college and they go off on their own, sometimes you don’t hear from them as often as you’d like?  Major things occur in your kids’ lives and you don’t know about them until after the fact, possibly long after.  So you get onto them about it, and ask the kids to call more often (or you call them more often) so that you can keep up with what’s going on…

It’s kinda like that with the Social Security.  They want to know when major changes occur in your life, as soon as possible.  This is primarily due to the fact that, quite often, these changes will result in adjustment to your Social Security benefits.

The first one that comes to mind is the death of a Social Security recipient.  Naturally you need to notify the Social Security Administration as soon as possible upon the death of a recipient.  The benefit that the deceased recipient was receiving might transfer to his or her spouse if the rules allow.  Otherwise, the benefit will cease for that recipient, and other benefits may begin for dependents of the recently deceased.

If you are receiving Social Security benefits and you get married (or re-marry, either after the death of a spouse or after a divorce), it’s important to let the SSA know about your change of marital status.  This is because your marital status may have an impact on any benefits that you are receiving that are based on a former spouse’s record.  In addition, a new marriage could result in new dependents for you, and so your new dependents could be eligible for benefits based on your record.

In addition to death and marriage, SSA also wants to know if you are earning more than the allowable limits if you’re less than Full Retirement Age.  This is because a portion of your benefit will be withheld due to the additional earnings.  You can’t escape it, they’ll eventually figure this out and possibly ask for repayment.  Plus, if you’re receiving a pension from a non-SS covered job, you need to let SSA know about it so that your benefit is adjusted for WEP or GPO if either of those factors apply to your situation.

Obviously you need to let SSA know if your name or address changes and if your direct deposit account changes – you need to make sure that you will continue to receive your benefits and that important notices make them to you in the mail.

If your change of address includes an extended stay outside of the United States, you need to let SSA know about it.  You should also know that there are some countries that Social Security can’t send payments to – Cambodia, Cuba, North Korea and Vietnam.  Otherwise, you can have payments sent to you if you’re living in another country, but you’ll need to arrange this with Social Security.

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Know Your Options When Talking to Social Security

Cardpunch operations at U.S. Social Security Administration

When you get ready to file for your retirement benefits, it’s important to understand what options are available to you before you talk to the Social Security Administration.  There are many ways to get a good understanding of your options, including working with your financial advisor, reading up on the subject (this blog is a good place to start!), and talking to friends and relatives who have already gone through the process.

The reason it’s important to know your options is because the Social Security Administration staff that you may encounter are not trained to help you maximize your lifetime benefits – they are trained to help you maximize the benefit that you have available to you today.  Often the options that the SSA staff present to you are not the best options for you in the long run.  In addition, SSA staff are absolutely overwhelmed by the volume of folks that they are in contact with.  As I understand it, disability claims are backlogged by as much as three years in some cases – so you can imagine how difficult it is for the staff to handle new, unusual cases.

Listed below are a few examples that I’ve heard recently where folks have gotten erroneous or incomplete responses to basic questions presented to SSA staff.  This is not intended to be an exhaustive list, just a few things I’ve heard about recently.

Restricted Application

An husband, age 66, wishes to delay his filing to age 70.  At the same time, his wife, age 62, is filing for her own benefit today.  The husband wishes to file a restricted application for spousal benefits only – which would allow him to receive a benefit equal to half of his wife’s PIA (not her reduced benefit) while he continues to delay his own benefit to age 70.  SSA staff told him that since his own benefit would be greater than half of his wife’s PIA, he would not be able to do this.

Of course, if you’ve read this blog or my book, you know that this is incorrect.  The man called me and asked about it – and I told him to go back to the SSA and make the request again, specifically requesting to file a “restricted application for spousal benefits only”.  I then recommended that if he still received a negative response to request to speak to a supervisor about it.  Eventually, with this guidance, he was able to get the benefit that he asked for.

“Bonus” Lump Sum

If you are over Full Retirement Age (age 66 these days) and you go to or call the Social Security Administration to file for retirement benefits, you may be presented with an option for a “bonus” lump sum of up to six months’ worth of benefits, to be paid to you when you receive your first check.  Don’t fall for it without knowing what’s going on!

What is happening is that the SSA staff is suggesting an option to you that is available – of retroactively applying for benefits six months prior to the actual date.  Effectively, if you are (for example) 67 years old when you take this option, you will be filing as if you are 66 years, 6 months of age.  This will reduce your Delayed Retirement Credits by that 6 months, or 4%.  You’ll end up with a lump sum check for the six months that you hadn’t received up to that point, but your future benefits will be 4% less than they would have been had you filed at your attained age of 67.

If this is what you want, then go for it – but realize that not only is your own future benefit going to be permanently reduced from what it could have been, any survivor benefits that your spouse will receive are also reduced.

Divorcee planning

A divorced person who is qualified to receive benefits based upon her ex’s work record often has difficulty in planning when to receive benefits.  This is especially troublesome if you are pretty certain that your Spousal Benefit will be significantly more than your own benefit, and you’d like to maximize that benefit.  The trouble is that you may not have access to the complete information about your ex’s benefit (and therefore, any spousal benefit you could receive).

The key to this is to have the correct documentation about your situation when you talk to Social Security.  Most often, this is going to require a visit to the local office, although I’ve been told this can be done over the phone.  I assume in a case like that there are several calls involved because you’ll have to send your documentation for the SSA to verify.

At any rate, if you have your marriage license and your divorce paperwork, which show that you were married for ten or more years and the divorce occurred more than two years ago, along with your ex’s Social Security number and date of birth, the SSA staff will be able to provide you with information about what benefits you are eligible to receive based on the ex’s record.  Without this documentation, you will be denied access to the information.

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2013 Social Security Wage Base Projected

Cardpunch operations at U.S. Social Security Administration

jb update 10/16/2012: The wage base for 2013 was confirmed at $113,700.

The Social Security Administration trustees recently projected the wage base for 2013.  This is the maximum amount of wage income that an individual earns for the year that is subject to Social Security withholding tax.  For 2013, this amount is projected at $113,700.

The new amount is $3,600 more than the 2012 wage base, which is set at $110,100, for an increase of 3.27%.  Keep in mind that this is only the increase in the taxed wage base, and there is little correlation between this and any potential increase in benefits for the year.

Future years’ estimated wage bases are projected as follows:

2014: $117,900

2015: $123,000

2016: $128,400

These are only projections, each year in October the SSA trustees will set the amount for the coming year.

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SS Earnings Info Online; Plus Paper Statements Are Coming Back!

From "Why Social Security?" (1937)
From “Why Social Security?” (1937) (Photo credit: Tobias Higbie)

Remember way back in 2011, when the Social Security Administration used to send you a paper statement every year?  This was a useful statement, which included the estimates of your future benefit at age 62, full retirement age, and age 70, as well as a run-down of your year-by-year earnings information.  Ah the good ol’ days…

Sometime in 2011 the SSA stopped mailing those statements, and instead made available on their website a series of calculators which would give you your Primary Insurance Amount (the amount you’d receive at Full Retirement Age) estimate, but little else.  This calculator was nowhere near as useful, and lots of folks were upset about it.

Well, apparently someone at SSA listened, because now there is a new option on the SSA website, at, where you can create an account and receive essentially the same information that was previously available on the paper statement – including earnings history!  How about them apples??

But that’s not all…

I have also have it on good authority from a source within SSA that the paper statements will be coming back.  Only for folks age 60 and older, but hey, that’s who really needs this information anyhow, so this is great!

Great job, Social Security!

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One More File and Suspend Option

Spider's egg sac
Image via Wikipedia

We’ve discussed the file and suspend option in multiple articles, but did you know that there is one more option for file and suspend. This is one that provides you with the opportunity to earn delayed retirement credits (DRCs) on your Social Security benefits, even if you started receiving benefits early.

File and suspend is generally an option that is used by a married couple – providing a method by which one of the two can receive Spousal Benefits while the other delays receiving benefits until later, earning DRCs.  (For more on this, see this article on Spousal Benefits.)

This additional option is available at Full Retirement Age (FRA), just like otherwise.  But what’s different about this is that the suspend option is used when you’ve already been receiving benefits, most likely early at a reduced rate, and by suspending at FRA you make yourself eligible to earn Delayed Retirement Credits (DRCs) on your present benefit.

Here’s how it works: Say you started receiving your benefit early, at age 62.  By doing so you permanently reduced your benefit.  If you’d waited until Full Retirement Age (FRA), you could have received a benefit of $2,000, but by taking the benefit early you are now receiving a reduced amount, $1,500.  And ever since that time, you have been kicking yourself because you had plenty of money to keep you going, and you wished you had waited and delayed your benefit.

Without overcomplicating this with Cost-of-Living Adjustments (COLAs), let’s say you’ve now reached Full Retirement Age (FRA).  Having reached FRA, you now have the option to enact the file and suspend option.  This means that you can now suspend receiving your benefit and begin earning Delayed Retirement Credits of 8% per year, between now and your 70th birthday.  This means that your overall benefit could be increased by as much as 32%, to a total of $1,980.  This could be a way to bump up your future benefits, as well as your surviving spouse’s Survivor Benefit.

In the event that you try to put this one into action, expect for some opposition from Social Security staff.  Even in the most-accepted of circumstances, Social Security staff often claim to know nothing of the file and suspend option.  So one way to help yourself in talking to the representatives is to refer to the webpage at  I’ve copied the text below for your reference:

Voluntary Suspension of Retirement Benefits

If you have reached full retirement age, but are not yet age 70, you can ask us to suspend retirement benefit payments.

  • If you apply for benefits and we have not yet made a determination that you are entitled, you may voluntarily suspend benefits for any month for which you have not received a payment. Your request to suspend benefits may include any retroactive benefits that might be due.
  • If you are already entitled to benefits, you may voluntarily suspend current or future retirement benefit payments up to age 70 beginning the month after the month when you made the request.Reminder: We pay Social Security benefits the month after they are due. If you contact us in June and request that we suspend benefits, you will still receive your June benefit payment in July.

You do not have to sign your request to suspend benefit payments. You may ask us orally or in writing.

Note: If you started receiving Social Security benefits less than 12 months ago and you changed your mind about when they should start, you may be able to withdraw your Social Security claim and re-apply at a future date. If your request is approved, you must repay all the benefits you and your family received based on your retirement application.


Before you make your decision

There are some things you need to know about what will happen if you suspend your retirement benefits.

  • If you are enrolled in Medicare Part B (Supplementary Medical Insurance), you will be billed by the Centers for Medicare & Medicaid Services (CMS) for future Part B premiums.These premiums cannot be deducted from your suspended retirement benefits. If you do not pay the premiums timely, you may lose your Part B Medicare coverage. (You will have the option of automatically paying the bill from an account at your bank or financial institution.)

    Exception: If you also receive benefits as a spouse or ex-spouse, we can deduct your Part B premium from that benefit payment.

  • If you also receive Supplemental Security Income (SSI) benefits, suspending your retirement benefits will make you ineligible for SSI.
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It Pays to Wait For Your Social Security Benefits

Social Security Poster: old man

Image via Wikipedia

It’s usually best, for most things in the financial world, to act now rather than waiting around. The notable exception is with regard to applying for Social Security benefits. We’ve discussed it before (in fact part of this article is a re-hash of an earlier post) but it is an important point that needs more emphasis, in my opinion. As you’ll see from the table below, if you’re in the group that was born after 1943 (that’s you, Boomers!) you can increase the amount of your Social Security benefit by 8% for every year that you delay receiving benefits after your Full Retirement Age (FRA – see this article for an explanation).

Delaying Receipt of Benefits to Increase the Amount

If you are delaying your retirement beyond FRA, you’ll increase the amount of benefit that you are eligible to receive. Depending upon your year of birth, this amount will be between 7% and 8% per year that you delay receiving benefits – which can be an increase of as much as 32½% if you delay until age 70 and you were born in 1941 – when your FRA is 65 years and 8 months, and the increase amount is 7½% per year at that age. See the table below for the increase amounts per year based upon birth year:

Birth Year FRA Delay Credit Minimum (age 62) Maximum (age 70)
1940 65 & 6 mos 7% 77½% 131½%
1941 65 & 8 mos 7½% 76% 132½%
1942 65 & 10 mos 7½% 75 5/6% 131¼%
1943-1954 66 8% 75% 132%
1955 66 & 2 mos 8% 74 1/6% 130%
1956 66 & 4 mos 8% 73% 129%
1957 66 & 6 mos 8% 72½% 128%
1958 66 & 8 mos 8% 71% 126%
1959 66 & 10 mos 8% 70 5/6% 125%
1960 & later 67 8% 70% 124%

So you can see the impact of delaying receipt of retirement benefits – it can amount to more than 50% of the PIA (Primary Insurance Amount), when you consider early benefits versus late benefits. Of course, by taking benefits later, you’re foregoing receipt of some monthly benefit payments; given this, early in the game you’d be ahead in terms of total benefit received. This tends to go away as the break-even point is reached in your mid-70′s to early-80′s in most cases, which we’ll review in a later article.

An Example

Here’s an example of the benefit of delay in action: You were born in 1954, and as such your FRA is age 66. According to the benefit statement you’ve received from Social Security, you are eligible for a monthly benefit payment of $2,000 when you reach your FRA (which would be in 2020). If you delayed applying for your benefit until the next year, your monthly benefit payment would be $2,160 per month – an increase of $1,920 per year. If you delayed until age 68 (two years after FRA), the monthly payment would be increased to $2,320, for an annual increase of $3,840. At age 69, delaying would increase your annual benefit by $5,760, and at age 70, your monthly payment would be $2,640, for an annual benefit of $31,680 – $7,680 more than at FRA. This amounts to a 32% increase in your benefit by delaying receipt of the benefit by 4 years!


It’s important to note that this is not a compounding increase – that is, your potentially-increased benefit from one year is not multiplied by the increase for the following year. The factor for each year (or portion of a year) is simply added to the factor(s) from prior years. You also don’t have to wait a full year to achieve the benefit – this delay is calculated on a monthly basis, so if you delayed by 6 months your increase would be 4% over the FRA amount. The biggest benefit of this is that you can not only increase the amount you will receive over your lifetime, but also the survivor benefit that your spouse will receive upon your passing. For some folks this can make a huge difference as they plan for the inevitable.

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The Mystery of Social Security


Social Security has become a significant part of many retirees’ sustenance, ever since it was first introduced back in the 1930’s. As the traditional pension plan goes the way of the buggy-whip and common investor behavior leads to poor results in savings plans (if there are any savings at all!), the Social Security benefit becomes more and more important.

Unfortunately, the way Social Security works is a mystery for most folks. There’s really not much in the way of guidance for using the system, and relying solely on the phone representatives from the Social Security Administration is bound to lead you to a less-than-optimal result.

As with most financial activities, it pays to learn as much as you can about your options, possible strategies, and the pluses and minuses of various choices that you make. A Social Security Owner’s Manual is an attempt at providing you with the groundwork to better understand the Social Security system so that you can at least be well-informed of your options as you approach the date when you begin taking benefits.

What Your Social Security Statement Is Telling You

Confusing signal
Image via Wikipedia

We covered the Social Security annual benefit statement in depth in another article, but there is a portion of the statement that is a constant source of misunderstanding – the projection portion at the top of page 2.

If you’ll take a look at this portion of the statement, you’ll see a projection of your Social Security retirement benefits, at Full Retirement Age (whatever that is for you), at age 70, and at age 62.  Also listed are the amounts that you would receive for Disability Benefits, as well as amounts that your family would receive upon your death as survivors.  What gets missed for many folks is the part at the top which reads:

At your current earnings rate, if you continue working until…

With that short phrase comes a great deal of confusion and misunderstanding.  What this means is that, when you receive this document, assuming that you are something less than Full Retirement Age (FRA), the statement reflects a projection of your future earnings from now until those projected ages (62, FRA, and 70) – and those amounts provided are based upon that projection.

If, for example, you chose to stop working at age 62 and delay receiving benefits until FRA, the benefit that you’ll receive will likely be less than the amount shown on your statement… because you did not continue earning at your current rate to FRA, as the projection assumes.

Another example is where you continue working, but your income has been reduced, due to layoff or other dramatic change in your employment.  With the jobs outlook being the way it has been over the past few years, it’s not hard to imagine a situation where this might be the case.

There are several calculators available on the Social Security website that can help you to get a clearer picture of your actual benefit if your projected earnings will be something different than what you’ve experienced up to the present (or actually, up to two years ago, since that’s all the more that is generally covered with the statement).

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Boosting Your Social Security Benefit

As we’ve discussed elsewhere, your Social Security benefit is calculated based on your highest 35 years of earnings over your career, indexed to the current year.  So what impact can continuing to work past age 62 (or later) have on your Social Security benefits?

Dark clowds above the Social Security. Clock ?...

Image by Arjan Richter via Flickr


Any year in your earnings history that had very little or no earnings covered by Social Security works against you – since the calculations assume 35 years of earnings.  If you only had, for example, 30 years of earnings on your record and five “zero” years, these years with no earnings will reduce your average earnings that are used for calculating your benefit amount.  Continuing to work, even for a minimal amount, will eliminate these zero years from your record for calculation.

In addition, if you’re earning a higher salary relative to your earnings record, some of the lower years’ earnings can be eliminated from your calculation record as well, thereby boosting your Social Security benefit by increasing the overall average.

Lastly, when you get your annual statement from the Social Security Administration, a projected benefit amount is reported.  If you read the fine print, the projected benefit amount assumes that you continue to work up to the retirement age indicated, with your earnings remaining roughly the same as your most recent year.

If you retire at age 62 and wait to age 66 to begin receiving benefits, the amount of benefit that was projected for you at age 62 will be lower because you will have added zero years to the end of your working career.  The estimate assumed that you continued working at (presumably) a high earnings rate relative to the rest of your record.

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