In our recent posts, we've provided some basics on Social Security and Spousal Benefits. Armed with that information, let's start taking a simple look at some strategies that may allow married couples to more effectively maximize their lifetime Social Security benefits. We'll begin with a strategy often called "File and Suspend." (If you haven't read the previous posts, you are encouraged to do so first before reading on.)
As
we’ve already noted, you are always entitled to a Social Security benefit based
on your own earnings record. As a spouse, you are also entitled to a benefit
based on your partner’s earnings record, up to half of their Primary Insurance
Amount (PIA), called a Spousal Benefit. (You receive the greater of your own
benefit or half of your spouse’s, but not both.) However, in order for you to
receive a Spousal Benefit, your spouse must have filed for Social Security benefits
themselves. (Note: This is not the case when claiming on an ex-Spouse, but
that’s a topic for another post.)
This
is when File and Suspend can come in to play. While it has many possible
applications, it is most often used when one spouse is the primary earner and the
other spouse has little or no work history of their own.
Let’s
revisit the case of Woodrow and Edith Wilson. Edith is age 66 (her FRA) with a
PIA of $1000. Woodrow is age 66 (his FRA) with a PIA of $2400.
If
Edith wants to file for Social Security benefits today, she would get 100% of
her PIA as she is Full Retirement Age (FRA), so $1000. However, she would also
be eligible for Spousal Benefits, which would bring her monthly total to $1200,
but only if Woodrow has filed for benefits himself. If Woodrow wants to delay
his benefit in order to take advantage of Delayed Retirement Credits (DRCs), he
can File and Suspend.
Essentially,
Woodrow files for Social Security benefits and immediately suspends them,
receiving no payments. This allows Edith to claim the Spousal Benefit of $1200,
rather than just $1000. At the same time, Woodrow’s benefit continues to
increase. At age 70, Woodrow can then elect to receive his benefits and,
instead of $2400, will now get $3168 thanks to the 8% annual Delayed Retirement
Credits.
Bear
in mind that if Edith were not her Full Retirement Age, she is still eligible
for her own benefit and a Spousal Benefit, but both are reduced. Further,
before Full Retirement Age she is deemed to be filing for any and all benefits,
so if Woodrow had filed himself, she would get the reduced Spousal Benefit even
if she didn’t intend it.
While
we are simply providing a general overview, the reality is there are many
considerations when it comes to filing for Social Security benefits. Please
feel free to contact us directly if you have
specific questions relating to Social Security and your overall retirement
plan.
Sources:
http://www.foxbusiness.com/personal-finance/2012/07/16/smart-social-security-strategies-for-couples/
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Securities and investment advisory services offered through National Planning Corporation (NPC), NPC of America in FL & NY, Member FINRA/SIPC, and a Registered Investment Adviser. Registered Representatives of NPC may transact securities business in a particular state only if first registered, excluded or exempted from Broker-Dealer, agent or Investment Adviser Representative requirements. In addition, follow-up conversations or meetings with individuals in a particular state that involve either the effecting or attempting to effect transaction in securities, or the rendering of personalized investment advice for compensation, will not be made absent compliance with state Broker-Dealer, agent or Investment Adviser Representative registration requirements, or an applicable exemption or exclusion. Kemp and Associates and NPC are separate and unrelated companies. NPC PRIVACY POLICY. NPC #77769 10/15
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