File and Suspend
“File and suspend” is a strategy that married couples may choose to utilize in order to maximize their social security benefits. Presently a married individual can receive social security benefits for his/her own work or “spousal benefits” based on the work history of his/her spouse.
At the age of 62 an individual can apply for social security benefits but the applicant will receive a smaller amount of benefits than she would have received at full retirement age. (For those people born in or after 1938, full retirement age is being phased-in to the age of 68) However, rather than applying for social security based on her own work history, which would result in her receiving reduced benefits, the applicant may elect to receive spousal benefits, which may be up to 50% of the benefits that her spouse is entitled to receive. In order to be eligible for spousal benefits though, the applicant’s spouse had to have had at least filed for social security benefits too.
However, the spouse may not be ready to give up working, particularly when each additional year of work results in an 8% increase in the spouses own benefits. File and suspend however resolves this dilemma – by permitting the applicant to receive spousal benefits while permitting the spouse to work and accrue the additional credit for his/her own benefits.
How File and Suspend Works
First, the spouse must be at full retirement age, which currently is 66 years old. Next the spouse must file for his/her Social Security benefits, and then immediately suspend receiving those benefits for a later date. This enables the applicant – who is at least 62 years old - to apply for spousal benefits.
Here is an Example:
Bill, husband, is 66 and wants to work until he is 70 years old. Jane, wife, is 62 and would like to retire as soon as possible. Bill can receive $3000 per month if he decides to take his social security now. If Jane applies for her own benefits at age 62, she will receive $1200 per month, and if she waits until full retirement age she can receive $1600 per month.
BUT if Bill files and suspends now, Jane can claim spousal benefits that can be up to $1500 per month (50% of Bill’s benefits). Having elected only to take spousal benefits, when Jane reaches full retirement age, she will be entitled to receive 100% of her own benefits, which would be $1600. Finally, Bill can continue to work and his benefits will grow about 8% every year that his benefits are suspended.
File and suspend is effective because –
· it allows an applicant to retire as early as the age of 62;
· the applicant receives a higher amount of spousal benefits than the applicant would have received in reduced benefits for his/her own work;
· the applicant will still be eligible to receive 100% of his/her own benefits when the applicant reaches full retirement age;
· the applicant’s spouse can continue to work; and
· the spouse’s own benefits will grows around 8% every year that the benefits are suspended.
If you’re reading this, you need an estate plan. Why? The short answer is “Everyone, age 18 and older needs an estate plan.” It doesn’t matter if you are old or young, if you have built up considerable wealth or if you are just entering adulthood —you need a written plan to keep you in control and to protect yourself and those you love.
What Is Your Estate?
Your estate is comprised of the assets you own—your car, home, bank accounts, investments, life insurance, furniture and personal belongings. No matter how large or how small your estate, you can’t take it with you when you die, and you probably want certain people to have certain things you own.
What is an Estate Plan?
To make sure that happens, you need to provide written instructions stating who you want to receive your assets and belongings, what you want them to receive, and when they are to receive it--that is the essence of an estate plan. If you have young children, you will need to name someone to raise them in your place and to manage their inheritance.
A properly prepared estate plan also will have instructions for your care (and the management of your assets) if you become incapacitated, even for a short time, due to illness or injury. Without the proper documents in place, your family will have to ask the court for permission to use your assets to take care of you and to oversee your care. That process is out of your control and it takes time and costs money, making an already difficult situation even more difficult for your family.
Estate Plans Benefit Families of Modest Means
It might surprise you, but having a plan in place often means more to families with modest means because
1) they can least afford to pay unnecessary court costs and legal fees and
2) state laws, which take over in the absence of planning, often distribute assets in an undesirable way.
Here’s an example:
Sam and Meg had two young children. Sam died in a car accident on his way to work. Because he had no estate plan, the laws in the District of Columbia divided his estate into thirds: two thirds went to Meg and one third to his children. Meg, a stay-at-home mom, was forced to go back to work. The court set up guardianships for each child, which required ongoing court costs, including accounting, guardianship and attorney fees. By the time the children reached 18 and received their inheritances, there was not enough left for them to go to college.
What You Need to Know
Don’t try to do this yourself. You need the counseling and assistance of an experienced estate planning attorney who knows the laws in your state and has the expertise to guide you in making difficult decisions such as who will raise your children and who will look after your care at incapacity. That attorney will also know how to carefully craft the appropriate estate planning documents, so that what you think will happen when you become incapacitated or die actually happens.
Actions to Consider
· Call or email our office now to set up an estate planning consultation appointment. We make tough topics manageable to discuss and talk about.
· Don’t worry about how life will unfold; the best practice is to have your plan prepared now based on your current situation.