Are high-income Americans gaming Social Security? The Obama administration wants to go after the wealthy for "aggressive" moves to "manipulate" their Social Security claiming decisions, according to the fiscal 2015 budget released by the White House earlier this month.

The administration hasn't offered much elaboration, but a White House official, speaking on background, confirmed that the target is a benefit claiming strategy known as file-and-suspend -- a twist on the more straightforward strategy of delayed filing to earn a higher monthly benefit down the road. Although it's technically available to anyone, the White House thinks the strategy is being used to unfair advantage by high-income seniors and wants to shut it down because of the added benefit cost it imposes on the Social Security program.

Any change to file-and-suspend would require congressional action, so don't expect anything soon. But words like "aggressive" and "manipulate" are unusually strong for a federal budget document, so let's look at what file-and-suspend is about - how it's used and whether it makes sense to target it for elimination.

Anyone can boost their annual Social Security benefit through delayed filing. Benefits are calculated using a formula called the primary insurance amount, or PIA. Seniors who wait to start receiving Social Security until their full retirement age (currently 66) receive 100 percent of PIA; taking benefits at 62, the first year of eligibility, gets them 75 percent of PIA. And the higher benefit is enhanced by Social Security's annual cost-of-living adjustment, which is added back in for any years of delayed filing.

Filing later means higher annual income for life, which can be a great hedge against the risk of running out of money in old age. But it can mean fewer total lifetime years of benefits depending on your longevity, and that's where file-and-suspend enters the picture. Although there are several ways to use this feature, it is typically used to boost lifetime benefits for married couples.

Here's how it works: The spouse with the higher PIA - typically the man - files for benefits at his full retirement age (FRA), then immediately files a notice to suspend payment of those benefits. That permits the lower-PIA spouse to file for a spousal benefit, which is equal to half the husband's benefit.

That gets some benefit flowing to the household while the husband continues to accrue higher benefits until he files to start payments, perhaps as late as age 70; the wife then converts to her own full benefit. (Note: The spouse can convert to her full benefit only if she waits until her FRA to file for a spousal benefit.)

The couple benefit from higher individual benefits for the rest of their lives. If the husband dies first (that's usually the case), the widow then converts to a survivor benefit, equal to 100 percent of her spouse's benefit.

How much is the strategy worth? Consider the hypothetical case of Bill and Jane, a married couple both turning 66 this year. Filing this year at their FRA, he can expect a PIA of $2,000, while hers is $1,600. If Bill lives to 83 and Jane makes it to 95, their cumulative lifetime Social Security benefit will be $1,032,384, according to the T. Rowe Price Social Security Benefits Estimator (

Now, let's say Bill files and suspends, and Jane immediately files for a spousal benefit (receiving about $12,000 per year). When they both turn 70, Bill files to start payments and Jane converts to her own full benefit. Their cumulative lifetime benefit jumps by $136,088, to $1,168,472.

Even more important, Jane has maximized her benefit toward the end of life, when she is most likely to have exhausted other resources. Her annual benefit in 2042, when she is 94, will be $31,680 - $7,360 higher than if she and Bill both had simply filed at 66.

Too clever by half? Perhaps, but it's completely legal - approved by the United States Congress and signed into law by President Bill Clinton as part of a broader law called the Senior Citizens' Freedom to Work Act of 2000. The main point of the law was to give people incentives to work longer by allowing them to work and receive full Social Security benefits after they have reached their FRA.

The law's file-and-suspend provision allows married couples to start receiving some benefit to meet living expenses while they wait to get more later. It didn't get much attention until a few years ago, when the media started writing about it. A growing number of financial planners are recommending the strategy to clients. It's also getting better known through online services that help people maximize benefits.

File-and-suspend still is a small phenomenon, and the Social Security Administration doesn't have reliable data on its cost to the system's finances. But the administration seems interested in nipping it in the bud and is making the case that benefits flow to wealthy households that need it least.

"These strategies are sometimes marketed by financial advisors to upper-income beneficiaries who can afford to wait until they are older to claim their benefits," the White House official said.

But the jury's out on whether file-and-suspend is relevant only to the wealthy. Research by the Center for Retirement Research at Boston College found that 46 percent of file-and-suspend benefit flows to the top 40 percent of households, measured by wealth. These are the households that can afford to work with financial advisors, or can leave money on the table while they delay part of their benefits by using retirement accounts to meet living expenses.

At the same time, delayed claiming strategies -- of any sort -- should benefit lower-income households most, since they are most reliant on Social Security as a source of replacement income in retirement.

"It's not just for rich people," argues William Meyer, co-founder of, a fee-based service that helps people maximize benefits. "For many middle-income American couples, it's a great strategy for the highest earner to get the delayed credit as high as possible."

We'll need a lot more debate and discussion on this than just a single paragraph in the federal budget -- perhaps as part of a broader discussion of Social Security reform. Stay tuned.