Having covered extensively about the social security file-and-suspend strategy in all of the previous blog posts (part I, II, III, IV, V, and VI), now we will discuss a few important caveats to the social security file and suspend strategy.
All Benefits Suspended
The first is that the request to suspend benefits will suspend all benefits that the individual is eligible for. This means if you are already receiving any other form of Social Security benefit, it will be suspended. Similarly, this is also the reason why a married couple cannot "criss-cross" the file-and-suspend strategy so each can claim spousal benefits while earning delayed retirement credits.
Example 6.
Continuing example 4 earlier, where Harold was 66 and eligible for $1,600/month in benefits, and his wife Sheila was also 66 and eligible for $1,300/month in benefits, it's an appealing opportunity for Harold to file-and-suspend so Sheila can file a restricted application to begin to claim an $800/month spousal benefit while still delaying her individual benefit. However, if Sheila tries to also file-and-suspend so Harold can do the same thing, the strategy falls apart; when Sheila files and suspends her benefits, she will suspend not only her individual benefit, but also the spousal benefit she was getting from Harold, and at the same time the fact that Harold already filed and suspended means he won't be able to claim a spousal benefit even after Sheila goes through the process. Thus, the couple must decide which direction to go - Harold filing and suspending and Sheila claiming spousal benefits, or vice versa - but cannot do both.
Medicare Implications
The second caveat is that by going through the file-and-suspend election, the act of filing doesn't only render a spouse eligible for Social Security spousal benefits - it also renders the individual who filed eligible for Medicare Part A. And unlike Social Security benefits or Medicare Part B, it's not possible to opt out of Medicare Part A - enrollment is automatic for anyone who's over age 65 who applies for Social Security benefits.
While in general this automatic enrollment in Medicare Part A isn't necessarily problematic - at worst, it's duplicate or "extra" coverage, but it doesn't have any separate premiums or cost like Medicare Part B - the challenge is that once an individual is enrolled in Medicare, he/she is no longer eligible to contribute to a Health Savings Account (HSA). Thus, for someone who otherwise has a high-deductible health plan and wishes to make ongoing HSA contributions, the decision to file-and-suspend will render him/her ineligible to continue to make any new contributions (though existing funds in the HSA can remain, and are still eligible for tax-free distribution for eligible medical expenses.
Notwithstanding these caveats, though, the fact remains that the file-and-suspend strategy provides a great deal of flexibility, and a lot of opportunity for Social Security benefits maximization, not to mention the ability to hedge the risk of delaying benefits with the potential to reinstate the voluntarily suspending benefits in the future!
All Benefits Suspended
The first is that the request to suspend benefits will suspend all benefits that the individual is eligible for. This means if you are already receiving any other form of Social Security benefit, it will be suspended. Similarly, this is also the reason why a married couple cannot "criss-cross" the file-and-suspend strategy so each can claim spousal benefits while earning delayed retirement credits.
Example 6.
Continuing example 4 earlier, where Harold was 66 and eligible for $1,600/month in benefits, and his wife Sheila was also 66 and eligible for $1,300/month in benefits, it's an appealing opportunity for Harold to file-and-suspend so Sheila can file a restricted application to begin to claim an $800/month spousal benefit while still delaying her individual benefit. However, if Sheila tries to also file-and-suspend so Harold can do the same thing, the strategy falls apart; when Sheila files and suspends her benefits, she will suspend not only her individual benefit, but also the spousal benefit she was getting from Harold, and at the same time the fact that Harold already filed and suspended means he won't be able to claim a spousal benefit even after Sheila goes through the process. Thus, the couple must decide which direction to go - Harold filing and suspending and Sheila claiming spousal benefits, or vice versa - but cannot do both.
Medicare Implications
The second caveat is that by going through the file-and-suspend election, the act of filing doesn't only render a spouse eligible for Social Security spousal benefits - it also renders the individual who filed eligible for Medicare Part A. And unlike Social Security benefits or Medicare Part B, it's not possible to opt out of Medicare Part A - enrollment is automatic for anyone who's over age 65 who applies for Social Security benefits.
While in general this automatic enrollment in Medicare Part A isn't necessarily problematic - at worst, it's duplicate or "extra" coverage, but it doesn't have any separate premiums or cost like Medicare Part B - the challenge is that once an individual is enrolled in Medicare, he/she is no longer eligible to contribute to a Health Savings Account (HSA). Thus, for someone who otherwise has a high-deductible health plan and wishes to make ongoing HSA contributions, the decision to file-and-suspend will render him/her ineligible to continue to make any new contributions (though existing funds in the HSA can remain, and are still eligible for tax-free distribution for eligible medical expenses.
Notwithstanding these caveats, though, the fact remains that the file-and-suspend strategy provides a great deal of flexibility, and a lot of opportunity for Social Security benefits maximization, not to mention the ability to hedge the risk of delaying benefits with the potential to reinstate the voluntarily suspending benefits in the future!
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