Note: with the passage of the Bipartisan Budget Bill 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.
We’ve discussed the Social Security filing options of File & Suspend and Restricted Application many times before, but it seems that folks continue to confuse these two options. It’s easy to see why: one (File & Suspend) can be used to enable the other (Restricted Application). Also, neither option is available until the individual is at least at Full Retirement Age (FRA). It’s important to know the difference between File & Suspend and Restricted Application though – primarily because if you confuse the two when talking to the Social Security folks, you’ll have a much different outcome than you expected and hoped for.
Let’s start by defining each option.
File & Suspend: This is where an individual, who is at least at Full Retirement Age (age 66 if born between 1943 and 1954), files for his or her own retirement benefit and then immediately suspends receipt of those benefits. This sets a date for filing for the individual, which provides for dependent or auxiliary benefits (such as spousal or children’s benefits) to be paid based upon that individual’s record. In addition, since the receipt of benefits has been suspended, this individual’s future benefit is allowed to grow at the rate of 8% per year, up to his or her age 70.
It is important to note that the first part (File) is necessary to enable the auxiliary benefits to be paid based upon the account. The second part (Suspend) is only necessary if the individual wants to delay his or her filing to allow for the growth just mentioned above.
Restricted Application: This is where an individual, who is at least Full Retirement Age, has not filed for any benefits previously, and whose spouse has established a filing date (and could have suspended), files for ONLY the spousal benefit that is based upon the spouse’s record. If the individual doesn’t specifically file a Restricted Application, he or she will be filing for all benefits currently available to him or her.
This is important because if the individual who is filing has a retirement benefit of his or her own that either is larger or could eventually be larger than the Spousal Benefit, filing the Restricted Application allows his or her own retirement benefit to be delayed and future benefits will grow by the same 8% per year as mentioned above.
Examples of File & Suspend and Restricted Application
It’s very easy to see why these two are confusing. Let’s run through a couple of examples to help clarify.
Example 1: John and Joyce are ages 64 and 62 respectively. John has a benefit available to him of $1,500 once he reaches Full Retirement Age, and Joyce’s FRA benefit would be $800. The couple would like to maximize both benefits in order to receive the most money over their expected lifetimes, which they project to be at least into their mid-80’s.
When John reaches FRA, he doesn’t have to do anything – his benefit will continue to grow at the 8% Delayed Retirement Credit rate with no action on his part. However, he would benefit (and lose nothing) by enacting File & Suspend, which would open the door for Joyce (when she reaches FRA) to file for Spousal Benefits. It’s required that, in order to file for Spousal Benefits, the other spouse must have established a filing date.
So, when Joyce reaches FRA, if John didn’t File & Suspend, she has only one choice available. She can either file for her own benefit at the rate of $800 per month, or she could delay her filing and achieve the 8% increases annually.
However, if John does File & Suspend, Joyce has another option: filing a Restricted Application. This would allow Joyce to receive 50% of John’s FRA benefit, equal to $750 per month ($1,500 x 50%), and allow her own benefit to increase by the 8% factor. This way she’s receiving almost as much as her retirement benefit and when she reaches age 70 her own benefit would be increased to $1,056.
Example 2: Same facts as above, but John and Joyce only want to maximize John’s benefit, and would like to start Joyce’s benefit now at her age 62. Her benefit would be reduced to $600 (75% of her FRA benefit of $800) per month.
Since John is under FRA, he does nothing at this point. When he reaches FRA, John has a unique option available to him: he can either File & Suspend, which would only establish a filing date for him and nothing more; OR since Joyce has already filed for her benefit, John could file a Restricted Application. This would allow John’s benefit to continue to accrue the Delayed Retirement Credits of 8% per year in order to maximize his benefit, but at the same time he could be receiving a Spousal Benefit equal to 50% of Joyce’s FRA benefit, or $400 (Joyce’s FRA benefit of $800 x 50%) even though she filed earlier and received a reduced benefit.
By doing this, now John and Joyce will be receiving $1,000 (her reduced $600 plus his Spousal Benefit of $400) per month until John reaches age 70, when he files for his own benefit which has increased to $1,980 per month. Joyce would continue with her $600 reduced benefit, making their total benefit $2,580 per month.
So you might ask, why can’t Joyce file for Spousal Benefits at some point? Since she filed for her own benefit earlier and her own benefit (at FRA) would be greater than the Spousal Benefit ($750), she is not eligible for any Spousal Benefit. She also could not file a Restricted Application since she already established a filing date, at her age 62.
Example 3: Sid and Nancy, both age 62, both with the same retirement benefit available at Full Retirement age, $1,200 each. They would like to maximize their benefits over their lifetimes which they project to be at least into their mid-80’s.
Since they want to maximize both benefits over their lifetimes, they will not take any action at their current ages of 62. They’ve heard of this File & Suspend thing and they think they should take advantage of it. Not having read about it, when they reach FRA, they call Social Security (individually) and tell them that each of them would like to File & Suspend. Now both of them will be able to delay receipt of benefits until age 70, receiving an increase to their benefits of 32% (8% per year) for a total benefit to for each at $1,584 per month for a total of $3,168 per month together.
Unfortunately Sid and Nancy only thought they understood File & Suspend, but by enacting File & Suspend for both of them they eliminated the possibility for either of them to file a Restricted Application. Since they eliminated this, they effectively left $600 per month “on the table” for four years – a total of over $28,000.
If on the other hand only Sid had enacted File & Suspend, Nancy could have filed a Restricted Application. She would then receive 50% of Sid’s FRA benefit, $600 per month, and her own benefit would continue to accrue the Delayed Retirement Credits of 8% per month. The end result is that Nancy would still receive the 32% increased benefit at age 70, just the same as Sid, but they would also have received the $600 per month in Spousal Benefits for four years. (This would have worked exactly the same if Nancy had enacted File & Suspend and Sid filed a Restricted Application.)
I hope that these examples have helped to straighten out the concepts in your mind and that you don’t confuse the two when talking to SSA about your benefits. If you have further situations that you’d like to toss out as examples, feel free to leave a comment below and I’ll do my best to address them.