For a decade and a half, the “File and Suspend” strategy was an excellent way for dual income couples to max out lifetime Social Security income. A top choice for high and low earners alike, it provided a significant boost compared to simpler spousal strategies. The same was (and still is) true for the restricted application, a somewhat less effective way for a higher earning spouse to collect a check while earning delayed retirement credits.
With the passage of the 2015 Bipartisan Budget Act, however, File and Suspend came to an end, and the strategy was completely phased out by May 1, 2016. The restricted application was also set to expire, and it’s now only available for seniors born before 1954.
While some clients never knew about File and Suspend, others were counting on the extra income it would provide. If you’re serving clients who planned to do so – particularly those who haven’t seen an advisor in the last couple of years – it’s important to understand these strategies: how they worked, how they came to be, and what alternatives you should advise.
File and Suspend and the Restricted Application
How exactly did these strategies work? In the case of File and Suspend, a higher-earning spouse would file for benefits at full retirement age and immediately suspend. That would allow the lower-earning spouse to claim and collect spousal benefits, while the higher earner accumulated delayed retirement credits.
For example, Bill reaches FRA at 66, files for his $2,000 monthly benefit and suspends. His wife, Betty – also age 66 – then files for spousal benefits and collects a COLA-adjusted $1,000 for the rest of her life (50 percent of Bill’s benefit). Once Bill reaches 70, he’ll get $2,640 per month, or 32 percent extra, for the rest of his life, as well.
With the restricted application, on the other hand, the lower earning spouse claims first (and doesn’t suspend). The higher income spouse then selectively collects half the lower earner’s benefit between FRA and age 70, while they let their own benefit grow.
Using the prior example, Betty might collect her own benefit of $800 at age 66, and Bill would get $400 on a restricted application. Thus, the couple would bring in $1,200 total per month until age 70. At that point, Bill would receive $2,640, Betty would switch over to her $1,000 spousal benefit (half of Bill’s primary insurance amount), and they’d bring in a total of $3,640 per month.
The restricted application isn’t as useful for single income households, of course, but for many dual income couples, it allows for the same or even greater lifetime SSI compared to File and Suspend.
Origin and End
How did these strategies come about in the first place? “Decades ago, when most households had a primary wage earner, the spousal benefit was designed for the spouse who stayed at home, raised the kids and had no personal Social Security record,” says John Daly of Daly Investments.