How Social Security’s file-and-suspend feature works

It’s not often that the federal budget deals with the nitty-gritty of personal-finance strategies for retirement. But this intriguing statement is buried deep inside the fiscal 2015 budget that President Obama released in March:

“In addition, the Budget proposes to eliminate aggressive Social Security claiming strategies, which allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits.”

The statement is a bit opaque, but when I asked the White House about this for a Reuters column, an official confirmed that the target is a somewhat obscure Social Security benefit-claiming strategy known as file-and-suspend. It’s a variation on the more straightforward strategy of delayed filing to earn a higher monthly benefit down the road. Mainly, it permits married couples to have their cake and eat it too–they can earn credits for delayed filing and bring in some Social Security income while they wait.

The White House assertion that file-and-suspend is being used exclusively by high-income households to game the system is debatable. A study by the Center for Retirement Research at Boston College found that 46% of file-and-suspend benefits flows to the top 40% of households, measured by wealth. These households certainly are more likely to work with financial advisors, who often help execute the strategy. File-and-suspend also has become a favorite strategy for online services, such as, that help claimers maximize benefits. And wealthier households have other financial resources that can be spent to meet living expenses while they wait to receive Social Security.


On the other hand, any type of delayed claiming strategy will benefit lower-income households most because they are most reliant on Social Security as a source of replacement income in retirement. File-and-suspend definitely isn’t a loophole; it’s completely legal under the Senior Citizens’ Freedom to Work Act of 2000. The main point of the law was to give people incentives to work longer by allowing them to work and receive full Social Security benefits after they have reached their full retirement age, or FRA. The White House proposal would require congressional action, so don’t expect changes anytime soon. But the shot across the bow of file-and-suspend makes this a good time to look at how the strategy works. Click for more . . .

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