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Social Security tips: Pad your pocketbook with 'file and suspend'

A strategy known as file and suspend can boost Social Security benefits. TODAY financial editor Jean Chatzky has the details.
/ Source: TODAY

Worries about the future of Social Security abound but that doesn’t mean this generation of retirees are relying on it any less. According to the Center for Retirement Research at Boston University, more than a third of beneficiaries 65 and older rely on Social Security for more than 90 percent of what they live on and two thirds count on payouts for at least 50 percent of their retirement needs.

First of three parts

So of course it makes sense to do everything you can to maximize your benefit, says Jim Blankenship, a financial planner in New Berlin Illinois and author of "A Social Security Owner’s Manual."

Enter file and suspend.

Senior couple fishing, for Social Security Tips story by Jean Chatzky
Senior couple fishing.Shutterstock

What is file and suspend? It’s a strategy actually, that can translate into more moolah in your pockets over time. In a nutshell, you can make a claim for Social Security benefits at your full retirement age (66 or 67 depending on when you were born) but delay actually receiving payments. That can work to your advantage because your spouse or eligible children can receive benefits based on your record of earnings and at the same time, you can delay your payments up until age 70. Each year you delay past your full retirement age, Social Security will add an 8 percent increase to your benefits. But you must apply for benefits in order for your spouse to receive his or her benefits. If you don’t file and suspend your spouse may be leaving money on the table.

An example makes it easier to understand. Say your wife is 66 (full retirement age for those born between 1943 and 1954) and her Social Security benefit is less than her spousal benefit of $1,000. You are also 66 and eligible for a $2,000 monthly payment. If you wait until age 70, that payment will grow to about $2,640. File and suspend allows your wife to collect the spousal benefit while your benefit grows, explains Blankenship. It also allows her to qualify for delayed retirement credits on her benefit.

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People eligible for divorced spouse benefits may also find file and suspend helpful. If those benefits are lower than their own benefits, they can file and suspend for themselves but start taking the divorced spouse payments while they wait.

You don’t have to be married to benefit from file and suspend. If you use this method to delay your own payments, you can get your hands on the money if you find you need it before age 70. Social Security will pay you a lump sum equal to the amount of the payments you would have received if you had not filed and suspended. So if you were eligible for a $1,000 payout when you were 66 and now at age 68 you need to start taking your benefits, you would receive a $24,000 lump sum payment. If you did not use the file and suspend option, you only would be eligible for a significantly lower six month lump sum payment of $6,000.

Finally, if took your Social Security benefits before full retirement age – starting a stream of smaller payments -- and you regret it, file and suspend may help you catch up. When you reach full retirement age you can suspend your payment until age 70, accruing the 8 percent increase each year you wait to have payments start again. Often the increase will help monthly payments come close to the amount you would receive if you hadn’t started early. (Note: If you change your mind about filing early within 12 months, you can withdraw your application, pay back the amount you’ve received and file again at a later date.)

Part 2: the 'restricted application' and how to use it

Part 3: Maximizing your survivor benefits