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A Good Reason to File and Suspend: Back Benefits

Man wearaing suspenders

Man wearaing suspenders (Photo credit: Wikipedia)

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. In particular, the provision discussed below is no longer available to anyone.

We’ve discussed the file and suspend option in the past as it relates to enabling your spouse or dependents to begin receiving benefits based on your record while you delay filing to accrue the delay credits.  But there’s another reason that you might want to file and suspend at Full Retirement Age (FRA) – and this one has little to do with a spouse, even single folks can take advantage of this.

When you file and suspend, what you have done is to establish a filing date notation on your record. By establishing a filing date notation, as mentioned before, your spouse and dependents can file for benefits based upon your record.  In addition, since there is a filing date on your record, you are eligible to change your mind about delaying your filing to a later date and receive your benefits retroactively from that point to the point when you “unsuspend” your filing.  Then from that point forward you will receive your benefits monthly as if you had filed (and not suspended) on the original date.

An important point is that you cannot file and suspend until you have reached Full Retirement Age.  This option is not allowed prior to FRA.

Why would you want to do this?

There may be more reasons, but the one that immediately comes to mind is if you have a reason to believe that your lifespan will be much shorter than the crossover age, typically around age 80.  After the crossover point, your lifetime benefits from delaying your retirement become more than if you had filed earlier.

Commonly when the decision is made to delay benefits past FRA, you are assuming that it will be beneficial for you in the long run – in other words, you anticipate that you’ll live beyond the crossover age.

For example, you could file and suspend at age 66 (FRA) and then later, at age 68 you are diagnosed with a significant health problem that will likely shorten your life.  Instead of waiting until age 70 to file for your benefits, or unsuspending your benefits at your current age, you could ask to unsuspend your benefits as of the date that you originally filed at FRA (age 66).  You would then be eligible to receive back-benefits from the point of the original filing in a lump sum, and then you’d receive benefits each month going forward at the rate you would have received at age 66 (plus COLAs).

If you’re single and delaying your benefits past Full Retirement Age, I can’t think of any reason why you wouldn’t want to do this.  There’s always the possibility that you will have a change in your outlook (heaven forbid).  If that were the case, the back-benefits could come in really handy, not to mention that you could receive ongoing benefits from that point on.

On the other hand, if you’re married you need to consider if there’s a possibility that it might be beneficial to receive spousal benefits based on your spouse’s record.  If so, then you wouldn’t want to file and suspend, because this would substantially reduce or eliminate any spousal benefit that you would be eligible for.  Keep in mind as well that if you unsuspend your benefit, your surviving spouse and dependents’ benefits will be based on the lower benefit level (when you originally filed).

For example, Tom and Joy are age 66 and 62 respectively.  Tom’s expected age 66 benefit is $1,800 per month, and Joy’s is $800.  Joy intends to begin receiving her own benefits right away at age 62, and as such her benefit will be reduced to $600, or 75%.  Tom has a choice now: he could file and suspend, or he could file a restricted application for spousal benefits only.

If Tom files and suspends, Joy will be eligible for reduced spousal benefits of an additional $70 on top of her reduced retirement benefit, for a total of $670 per month.  However, if Tom were to file a restricted application for spousal benefits only, he would be eligible for $400 per month.  So this way, Tom and Joy are receiving a total of $1,000 per month.  In this case Tom would not want to file and suspend his benefits at FRA – unless he’s concerned about the possibility of a shortened lifespan.

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