Claim and Suspend to Maximize Total Family Social Security Benefits

May 24, 2016 Update:  As of May 1, 2016, a recent law has abolished claim and suspend.

The Social Security system allows those who have reached full retirement age (somewhere between 66 and 67 for most people; to determine your full retirement age, go to http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/14) to start collecting benefits, and then suspend them. While suspended, the benefits will increase, either because the person is working and building benefits, the person is getting older and benefits are increasing because the claimant is deferring them, or both. Not that many people claim and defer in order to increase their own benefits. That would happen only in the unusual instance where a person collecting benefits resumes working and earns enough to live without Social Security. So why would anyone claim and suspend?

The answer is to increase family-wide benefits. If, as between you and your spouse, you have the larger Social Security benefit, you might want to claim and suspend immediately, as soon as you reach your full retirement age. That would allow your spouse to begin collecting spousal benefits based on your Social Security record, while your benefits increase because you wait (the increase is about 8% a year even if you don't work and might be more if you do). If your spouse's Social Security record provides smaller benefits than spousal benefits under your record (or no benefits at all), a claim and suspend with the commencement of spousal benefits may increase total family benefits.

In addition, a couple who have both reached full retirement age can be better off if (a) the partner with the better Social Security record claims and suspends in order to defer benefits (and increase them); and (b) the other partner gets more by claiming spousal benefits instead of collecting under his or her own record, at least for a while. Sometimes, the latter partner's own record will provide larger direct benefits if he or she waits long enough, so collecting spousal benefits under a claim and suspend by the other marital partner may serve as a temporary way to increase total family benefits until the latter partner begins to collect under his or her own record. This strategy is allowed only if both spouses have reached their respective full Social Security retirement ages. The marital partner claiming spousal benefits for a while also has to go through the process of doing a claim and suspend with his or her own Social Security record, and then apply for spousal benefits. Note that the partner collecting spousal benefits can keep working and perhaps increase his or her benefits with an enhanced work history as well as by waiting to collect on his or her own record. Because this partner will, by definition, be at full retirement age or older, he or she will not lose any Social Security benefits from working.

Another facet of claiming and suspending is that if you reach full Social Security age and have dependents--something that's possible for grandparents raising grandchildren and late in life parents with kids at home when a parent reaches full Social Security age--the dependents can start claiming benefits if you claim and suspend. (In fact, the dependents can collect benefits earlier if you start collecting benefits yourself earlier, but you can't do a claim and suspend unless you've reached full Social Security age.) The advantage is that your dependents begin to collect benefits while you defer (and increase) your personal benefits. If you are still working or have other income you can live on, claiming and suspending in order to start benefits for your dependents may enhance total family benefits. Of course, you have to think carefully about how to handle your dependents' payments. As minors, the young ones may not have the most highly developed financial skills, so you should think about putting the money in a custodial account and saving it for their college or other post-high school education expenses.

Claim and suspend is available only if you wait until you reach your full Social Security retirement age (and your spouse, too, if he or she wants to first collect spousal benefits and then switch over to enhanced personal benefits). If you start collecting benefits early, you can't claim and suspend. Your spouse and dependents can also start collecting under your Social Security record if you begin collecting early, but their benefits, just like yours, will be reduced. How these alternative strategies might work for you and your family would depend on your circumstances. If you have trouble figuring out what's best for you and your family, contact the Social Security administration for more information (meet with someone at your local Social Security office or call 1-800-772-1213; don't try to do this by e-mail) or consult with a fee only financial planner.