The One Downside to the File and Suspend Tactic

Note: with the passage of the Bipartisan Budget Act of 2015 into law, File & Suspend and Restricted Application have been effectively eliminated for anyone born in 1954 or later. If born before 1954 there are some options still available, but these are limited as well. Please see the article The Death of File & Suspend and Restricted Application for more details.

Some time ago I wrote about The File And Suspend Tactic for Social Security Benefits.  Briefly, this is where you file for your Social Security benefit, most often at your Full Retirement Age (FRA), and then suspend payments, so that your spouse can begin taking the Spousal Benefit based upon your FRA benefit amount.  You then delay receiving your benefit until age 70, maximizing your lifetime (and potentially your spouse’s Survivorship) benefits.

There is one downside to the File and Suspend tactic, though:  since you have filed, any spousal benefits based upon your spouse’s record will be limited to the excess spousal benefit, or offset.  Remember, spousal benefits are based upon (at most) half of your spouse’s PIA minus your own PIA (if you’ve filed).  If you haven’t filed and you’re over Full Retirement Age, you can file a restricted application and receive a benefit equal to half of your spouse’s PIA.  If you have filed (or filed and suspended) then your spousal benefit will be limited to the amount that is greater than your own PIA.

Here’s an example:

John is age 66, Full Retirement Age, and has a PIA of $2,000.  His wife Joan is also FRA, and she has a PIA of $1,000.  John is intending to delay his benefit to age 70.  If John Files and Suspends, he will not be eligible for a Spousal Benefit, since his PIA is more than half of Joan’s PIA.  If John doesn’t file and suspend, he could be eligible for filing a restricted application for spousal benefits, equal to half of Joan’s PIA.  (Joan would have to file for her own benefit to enable this).

On the other hand, if John were to File and Suspend, and then Joan files a restricted application for Spousal Benefits only, she would be eligible for a Spousal Benefit of $1,000 (half of John’s PIA) – and since she hasn’t filed for her own benefit her PIA isn’t subtracted from that amount.  Then she can wait until age 70 and file for her own benefit, which will be increased by the Delayed Retirement Credits.

This downside is definitely one that you should keep in mind if you’re enacting the File and Suspend option.  It pays to fully understand what File and Suspend enables, but also what it takes away.  In the case of John and Joan, John should File and Suspend, and Joan should file the restricted application.  This will result in the greatest amount of benefit for this couple.

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