Maximizing a couple's Social Security

Second of two parts

In honor of the 77th anniversary of Social Security, last week I covered the basic variables that go into any decision on when to claim benefits. This week, I'll talk about a Social Security strategy that can help married couples, which is called "file and suspend."

Many people think of the decision to file for Social Security retirement benefits as an irrevocable one, but the government actually allows anyone to reconsider, as long as it's within one year of filing.

If you change your mind, you need to notify the government and, if the request is approved, you have to repay all the benefits you and your family received based on your retirement application. If you had enrolled in Medicare Part B, you would be billed for future Part B premiums.

You can change your mind within the one-year window, no matter when you start benefits, whether at age 62, 65, 66, etc. But you can only voluntarily suspend current or future retirement benefit payments ("file and suspend") if you have reached full retirement age and are not yet 70. File and suspend is a feature of the system that can be useful for married couples, especially where one spouse has earned significantly more than the other spouse during their careers. In these cases, the lower-earning spouse is usually better off claiming half of the spouse's benefit because it will be higher than his or her individual benefit.

File and suspend allows the primary wage earner to apply for benefits, then suspend collecting, while allowing the other spouse to start collecting spousal benefits immediately. Here's the best part: The primary wage-earning spouse can wait to claim benefits until age 70, which increases the future individual Social Security benefit by 8 percent each year between ages 66 and 70.

Here's an example of how file and suspend can work. Fred and his wife, Ethel, are both at the full retirement age of 66, based on their birth dates. He is still employed, and she spent most of her life working in the home and therefore will be better off claiming half of his Social Security benefit rather than her own. His current benefit is $2,500 a month. Fred files for Social Security, and then voluntarily suspends his actual payments. Helen then claims her monthly spousal benefit of $1,250; her husband's benefits will not be affected by Helen's claim.

During Fred's suspension period, he will earn delayed retirement credits, which increase his Social Security retirement income by 8 percent a year. By the time he refiles for his benefit at age 70, the age at which benefits top out, his payment has increased to $3,300 a month. The couple has now collected income of $1,250 a month for four years, increased their total income stream after age 70 and, if Fred predeceases Ethel, she can give up her spousal benefit and begin taking his higher payment for the rest of her life.

File and suspend does not work for every couple. If spouses have earned similar amounts over their careers, the 50 percent spousal benefit might not add up to more money over the four years, and it may be better for each to draw their individual benefits. Additionally the decision boils down to your particular circumstances. Some couples can't afford to delay claiming benefits, and the health of both spouses must be taken into account.

There is flexibility with file and suspend. You don't need to make the decision as soon as you reach full retirement age; you can choose it at any time until age 70. Additionally, if you have exercised file and suspend but later decide you want the income before you turn 70, you can reinstate your benefits.

Social Security can be confusing, but spending time either with free or paid calculators can help guide you through the process.

If you work with a broker or an adviser, don't hesitate to ask him or her to crunch the numbers, or consider engaging an adviser or an accountant by the hour. The investment may be well worth it over the long run.

Jill Schlesinger is the editor at large for CBSMoneyWatch.com and writes this column for Tribune Media Services.