Wealth Advice: Social Security, File and Suspend Strategy

Thurs, JAN 26th, 2012

Deciding what social security benefits to take can be a complex decision for your family. Understanding the trade-offs for taking one benefit verse the other is an important evaluation before electing your benefit.

Below, I have listed one strategy that can help increase your overall family’s social security benefits if you fit into a certain situation. The strategy works both if spouses have reached full retirement age and the higher earning spouse is still working and plans to keep working.

Once the lower-earning spouse reaches full retirement age they can chose between their benefit based on their earnings or a spousal benefit, which is typically half of their spouses benefit. However, the lower-earning spouse can only get the spousal benefit if the higher-earning spouse applies for their benefit. It is here that the apply and suspend strategy become useful.

The higher-earning spouse can apply for their benefit at full retirement ago so that their spouse can now get half of their benefit, which may be more than what they can get with their own benefit. The higher-earning spouse then immediately suspends their benefit which allows them to continue to accumulate delayed retirement credits and build their benefit for the future while the lower-earning spouse receives the potentially higher spousal benefit.

As an example:

At full retirement age Husband’s benefit, $2,000 Wife’s benefit, $600 Spousal benefit, $1,000

The husband applies for his benefit which then allows the wife to receive an extra $400 spousal benefit. Then, he suspends his benefit which will then continue to grow until he decides to take it in the future. This is a nice way to give your family a $400 raise a month.

The caveat: this strategy will not apply to everyone but it does make sense for you to evaluate your own situation in order to try to maximize your benefit you will receive. As always, it’s imperative that you discuss this option with your financial advisor.

Devin B. Pope, CFP®, MBA dpope@albionfinancial.com

About Albion Financial

Established in 1982, Albion Financial Group is an independent, fee-only financial planner and investment manager located in Salt Lake City, Utah.