April 5, 2021 – Naturally enough, most people concentrate their focus on their own Social Security retirement benefits. If they are careful, they compare the advantages of taking it early (as soon as age 62), waiting to Full Retirement Age (FRA, which is 67 for those born 1960 or later), or hanging in to get the maximum benefit at age 70. While it is great to know your own situation, most people overlook the importance of the benefits that might apply to their spouses. For some couples, particularly where one member earns much more than the other and Social Security will be the major source of income in old age, a bad decision can be disastrous down the road. This article will lay out the issues involved, so people can decide the best strategy for maximizing their Social Security spousal benefits.
There are two different scenarios to consider: spousal benefits while you are both alive, and survivor benefits when you depart this world. Let us take them one at a time.
- Spousal benefits while you are both alive.
While both you and your spouse are alive, the choices to be made about spousal benefits are simpler than they were a few years ago. That is, unfortunately, because two advantageous options, File and Suspend and Restricted Benefit, are no longer available to anyone not already taking advantage of them. (We will explain those at the end of the article).
The options now.
Basically the decisions now are:
– What age to take the spousal benefit, or
-Not to take it and wait to claim on their own record.
When a person claims a spousal benefit they are subject to “deemed filing” rules. The deemed filing rules say that you are eligible for either your own retirement benefit or a spousal benefit at the time you apply, but you cannot claim one without claiming the other. You are “deemed” to be applying for both at the same time. What that means is that the SSA will decide which is the highest benefit and give that one to you.
Claiming by age 62: If your spouse has claimed Social Security retirement benefits, you are eligible to claim a spousal benefit as early as age 62. But you will get much less than if you waited to your Full Retirement Age, and less still if your spouse claimed before her FRA. Note that spouses with primary care of a child under 16 may be eligible to claim earlier. About 32% of SS recipients claimed at age 62 in 2019.
You are at Full Retirement Age: Assuming your spouse also claimed retirement benefits at her FRA or later, you get the maximum spousal benefit, 50%. Of course if the benefits from your own record are higher, you will get that.
Strategic decision: File for spousal benefits or wait? Now that deemed filing applies, the decision to file for spousal benefits or wait is trickier. Some of the decision comes from how much you need the money – if you need income to eat or pay the bills then the decision is easy – file for a spousal benefit.
The size of your eventual benefit also greatly affects the decision. If the second spouse had very few earning years or did not make much money, it usually makes sense for that person to take the spousal benefit early, as waiting several years for a marginally smaller benefit isn’t worth it. In some cases the low earner’s record might generate less of a benefit than what would come from the spousal benefit. If, however, the second spouse was also a high earner, it might be worth waiting to let their own benefit accrue, since Social Security benefits increase 8% a year from FRA to age 70.
2. Spousal benefits after the death of the first spouse.
After the first spouse dies the survivor receives the higher of either their own benefit, or what their spouse’s benefit was. There will no longer be two payments coming into the household.
If both partners earn about the same, there is not much involved. In the case of spouses with identical earnings records, the survivor will receive about what they always did from Social Security, assuming they claimed at about the same age.
But for couples where one of the pair earned much more money than the other, the potential implications for the person who was the lower earner are huge. This is the key consideration that gets overlooked the most, and can end up with a survivor living in poverty.
Example: Two couples with one higher earner in each
In this made-up example we have two couples, both of which have one spouse who earns significantly more than the other. One couple has a higher earner record that qualifies for the maximum payment. The other has a spouse who qualifies for the minimum and a partner who does not qualify for benefits. All four people in this example start to collect Social Security at the first opportunity, age 62. The high earners in each couple die at age 78, and the survivors live 12 more years to age 90. At the high earners’ deaths the survivors get a monthly payment equal to what the deceased, higher earning spouse was getting, and the spousal benefit goes away.
The couple with an earner who qualifies for the maximum Social Security benefit at age 62 in 2021 will receive $2324/mo. The high earner in the couple with the minimum earning record gets $1130/mo. at that age. If the maximum earner had waited until age 70 to claim, the benefit would have been $3895/mo., or a difference of $15,571/year. Since the surviving lower earning spouse went on to live 12 more years, that would mean $226,224 more in benefits over the rest of her life. Similarly, if the higher earner in the minimum benefit couple had instead waited until age 70 to claim, the difference in the potential lifetime spousal benefit would also be very high ($110,016). In both cases these number are large, and could mean an important difference in the survivor’s quality of life. Waiting to claim at FRA would make a smaller, but still significant difference in these examples.
What this example shows: We believe you should consider the possibility that your spouse might survive you by a long time. If their Social Security benefit is significantly lower than yours, think about delaying taking your Social Security retirement benefits as long as you can to protect them in their old age. Of course, if Social Security is only a small part of your income and you have many other retirement assets, this is less important.
Rights of Divorced Spouses
If you are divorced you are probably entitled to the spousal benefit from your former spouse (or your own benefit entitlement if you prefer). These conditions apply:
– You were married for at least 10 years to that person
– You are at least 62 and unmarried
You don’t have to wait for your former spouse to file – you can collect 50% of their current entitlement (or take your own). The fact that you are taking benefits based on your former spouse’s record has no impact on his/her benefit. The only strategic question here is whether to collect on your own benefit or take the spousal on your former spouse’s record.
We hope that we have convinced you that spousal benefits are worth considering, and that you should take them into account when figuring out when you will collect Social Security. It could make a big difference for your survivor. Please share your thoughts, questions, and concerns in the Comments section below. If you have further questions, many people have found calling the SSA or going to the www.ssa.gov website very helpful.
Gone baby gone.
As promised, here is an explanation of the two very advantageous claiming strategies not available to people not already using them.
The File and Suspend strategy, which is no longer available, basically allowed folks to have their cake and eat it too. The first spouse could file for benefits, allowing their spouse to claim a spousal benefit on their record. Then the original spousal could suspend his or her benefits, allowing him to also maximize his benefit up to age 70. That strategy ended in 2016.
The Restricted Benefit strategy was a good deal too, but it does not apply to people born after Jan 1, 1954. People born prior to that could claim a spousal benefit based on their eligible spouse’s earning record (but only if the first spouse had filed for benefits). The advantages of using this restricted strategy were twofold: the one taking the spousal benefit could continue to accrue on his or hers own earning record up to age 70, AND the couple gets income while that spouse waits to maximize benefits.
Note: Topretirements.com is not a Social Security or financial advisor. We provide information to try to help readers better understand the issues in order to make their own decisions. It is always a good idea to get professional advice from a qualified financial advisor or accountant.
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