Social Security has changed a lot over the years, and the best strategies to follow have changed along with it. One of the most popular strategies for married couples with Social Security used to involve having the high-earning worker in the couple file for benefits and then immediately suspend them. This file-and-suspend strategy allowed spouses and other family members to collect benefits immediately while letting the high-earning worker wait in order to claim a larger monthly check later on.
File-and-suspend is now history, and the only people who are successfully using that particular strategy right now are those who qualified under the grandfathering provisions when the Social Security law changed back in 2016. However, you can still suspend your Social Security benefits, and there are a few situations in which doing so can make a lot of sense.
What you can still do
The reason file-and-suspend was so popular was that it opened the door to a portion of your family's Social Security benefits while still letting you maximize your other benefits. But some lawmakers saw that as an unfair double-dip into the system, and so they changed the rules.
You can still suspend your benefits once you reach your full retirement age. However, when you do, any benefits that your spouse or other family members receive based on your work history also get suspended. In other words, there's no longer any free ride for family members, and your filing decision has to take into account not only your own benefits but also your family's benefits.
So when would you want to suspend your Social Security benefits under the new rules? Here are three situations in which it's worth considering.
1. You go back to work and don't need the money right now
One of the biggest reasons why people file for Social Security is that they've retired and need the replacement income that their benefits provide. However, as unemployment levels fall and demand for skilled workers rises, more retirement-age Americans are finding that there's an opportunity to keep working if they want to. Those who get their paychecks back might find that they don't need Social Security anymore, and they would prefer to suspend their benefits in favor of getting larger monthly checks later in life once they retire for good.
Once you hit retirement age, suspending your benefits will give you delayed retirement credits based on whatever benefits you received prior to suspending. So for instance, if your full retirement age was 66 and you started collecting benefits at the earliest possible age of 62, then your checks were 75% of what you would have received if you had waited until 66 to claim. If you decide to go back to work and suspend your benefits at 66 through age 70, then you'll earn 8% delayed retirement credits per year for four years, for a total of 32%. That 32% increase is calculated on the reduced 75% benefit, but as the math works out, raising a three-quarter benefit by almost a third nearly gets you right back to what your normal full retirement age benefit would have been if you hadn't claimed early in the first place.
2. You're trying not to pay taxes on your benefits
Some retirees receive income from certain sources in large chunks, such as through severance checks, payouts of accumulated vacation and sick leave, or lump-sum distributions from pension plans. Those payments can cause your income taxes to rise dramatically in that particular year, and that in turn can cause your Social Security to become mostly taxable. Once your income from outside sources plus half your Social Security tops the $25,000 mark for single taxpayers or $32,000 for joint filers, the IRS can start forcing you to add a portion of your benefits to your taxable income and collect tax on it.
By suspending your Social Security during that single year, you can avoid having to pay any taxes on your benefits, effectively electing to accept slightly higher monthly payments in future years as a trade-off for giving them up temporarily. That can save you several thousand dollars in taxes if you expect your income to go back down after that one windfall year.
3. You want your spouse to get a larger survivor benefit
In many marriages, both spouses work, and so having one spouse suspend benefits doesn't necessarily hurt the other spouse because both have their own retirement benefits. The suspension rules on family members only affect those claiming on the work record of the person suspending benefits. If those family members qualify on their own work record, then their benefits can be unaffected.
One reason to suspend and thereby earn delayed retirement credits is to boost the amount that your spouse would get in survivor benefits upon your death. The survivor benefit is based on the deceased spouse's benefit amount, and a surviving spouse can switch from a retirement benefit to the survivor benefit after the deceased spouse's death if it results in a larger payment. The delayed retirement credits make it more likely that the survivor can collect more from Social Security.
Be smart about suspending
File-and-suspend is gone, but there are still times when suspending your Social Security benefits can be smart. If your situation changes after you claim your benefits, keep in mind the possibility of suspending benefits, and don't hesitate if it makes sense to do so.