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A Potential “Gotcha” for Medicare and the File and Suspend StrategyIn July 2012 Laurence Kotlikoff, Professor of Economics Boston University and President of Economic Security Planning, Inc., in an article for Making Sense (a PBS publication) stated that if you select the File and Suspend approach and don’t pay your Medicare Part B premiums via your own checking account the consequences can be severe. The SSA will pay your Medicare premium for you and deem you as waiving your suspension of benefits and you won’t accrue DRCs. To sum it up, if you don’t pay your Medicare Part B premiums from your own checking account, when you retire your benefit will be no greater than when it was on the day you suspended benefits. The monthly Medicare payment for 2012 is $99.90.  For more information and exceptions to this rule see www.medicare.gov/default.aspx

Summary of Chapter 6: The File and Suspend Approach to Maximizing Benefits (The “62 / 70 Split”)

The “File and Suspend” approach is frequently called the “62 / 70 Split” it is another way to boost benefits. The file and suspend methodology allows the spouse of the high earner to collect benefits while the high earner accrues Delayed Retirement Credits (DRCs). The file and suspend approach works best for couples that have a high earner and a spouse that has never worked (or is a very low earner). The full-retirement age (FRA) high earner spouse files for benefits and immediately suspends his or her application. This allows the low earner to file for spousal benefits. Often the low earner is 62. The high earner continues to work, accrues DRCs, and retires at 70 (the 62 / 70 split). If the FRA high earner so desires he or she can “claw back” to the date he or she originally suspended their application and collect “back pay”.  In this situation, the big paycheck is nice but it is offset by a reduction in the amount of DRCs. There is an alternative option to the File and Suspend approach that is called the File and Suspend Combo Strategy. In this situation the FRA high earner files and suspends. The FRA low earner spouse files a “Restricted Application” for spousal benefits only and continues to work. At 70 the high earner re-applies for benefits and receives his or her DRCs. At 70 the low earner spouse switches from spousal benefits to claim his or her own benefits (which include four-years of DRCs). In other words, at 70 both spouses claim their own benefits that each benefit includes four years of DRCs.