Financial Planning Blog

The End of File and Suspend

Ted George posted this article on November 1st, 2015

The End of File and Suspend: Last week both houses of the U.S. Congress passed the “Bipartisan Budget Act of 2015” that should prevent government shutdowns and budget deadlocks for the next few years. Included in this bill was a change that directly impacts the social security benefit options of most retiring couples.

A popular Social Security benefit strategy called File and Suspend/Restricted Application (FSRA) involved a number of steps:

  • The first spouse would file for Social Security benefits at their Full Retirement Age (FRA: 66 to 67)
  • They would then suspend the benefit until age 70. The difference from just waiting until age 70 to take the benefit is that the other spouse (and dependents) could start taking benefits on the first spouse’s work record upon filing.
  • The second spouse would then file a spousal benefit claim, using a Restricted Application at their FRA.
  • At age 70 the second spouse claims their own benefit

The approved budget bill prevents this strategy from being used in a couple of ways:

  • When a retiree suspends their benefits, nobody else can receive a benefit on their work record. Also, they cannot receive benefits on anybody else’s work record
  • Restricted Application, or Deemed Filing, will no longer be allowed at any age. Previously it was only not allowed before FRA

There is a grace period until these new rules are enacted, as well as a few other exceptions:

  • People who will be 62 or old by the end of 2015 can still do a Restricted Application
  • People can still take benefits on another’s work record who has suspended as long as those benefits are suspended within 180 days of the legislation being enacted. This means that the whole FSRA strategy is only available to be started for 180 days.
  • Survivor benefit claims can still be filed with a Restricted Application.
  • Also note it is still possible to File and Suspend for its original purpose. That was for a person who filed for social security who decides to go back to work, and wants to delay receiving social security until they stop working.

Is this a Big Deal?

For certain people the loss of this strategy will be significant. For example if your budget is so tight that without the 3 – 4 years of social security benefits both spouses would not be able to wait until age 70 to take their benefits.

However an example shows that for most people, waiting until age 70 provides the biggest lifetime benefit increase. That is because by waiting to file, the benefit increases 8% annually resulting in a 24% – 32% higher monthly benefit. While the File and Suspend/Restricted Application (FSRA) provided a nice additional bonus, the loss of that option should not significantly impact most retirement plans.

As an example, let us look at John and Jane Doe. Let’s assume the following:

  • John, born the beginning of 1959, earns a $120,000 annual salary, which had gradually increased throughout his career
  • Jane, born mid 1959, earns a $60,000 annual salary which had also gradually increased throughout her career
  • Both Jane and John live to age 90

If they had both filed for their own Social Security benefits at their FRAs, their combined lifetime benefits are estimated to be approximately $1,450,000. The FSRA strategy would have resulted in approximately $1,620,000 of combined lifetime benefits, an 11.7% increase. If both spouses wait until age 70 to file without FSRA, their combined lifetime benefits are approximately $1,570,000, an 8.3% increase over filing for their benefits at FRA.

Last Word

The File and Suspend/Restricted Application Social Security benefit filing strategy will be missed. However for most couples who expect to have a reasonably long life, waiting until age 70 to file for Social Security benefits will result in the highest total lifetime benefits. They will also be happy to receive a significantly bigger benefit check each month for the rest of their lives.