Most everyone is familiar with the concept of Social Security Spousal Benefits – if not, click this link for a complete explanation.
In this article, we’ll be discussing an option that is available to all married recipients of Social Security retirement benefits – but you might not have thought of it. For most all married couples, it makes the most sense for the spouse with the higher wage base – that is, the spouse that has earned the most money throughout his or her working career – to delay receiving Social Security retirement benefits as long as possible.
As described in the article about credits for delaying Social Security benefits, each year that you delay receiving your Social Security retirement benefit past your full retirement age (FRA) can result in up to an 8% increase in your benefit amount. When delaying like this, it often also makes sense for the spouse with the lower wage base to begin receiving benefits at the lower rate, either at the early retirement age of 62, or upon reaching FRA. Then later, when the spouse with the higher wage base begins taking the increased, delayed, benefits, the spouse with the lower wage base will begin receiving the spousal benefit, based upon one-half of the higher wage base spouse’s benefit.
But Wait, There’s More!
What most folks don’t realize is that, while the spouse with the lower wage base is receiving the reduced benefit, the spouse with the higher wage base can apply for a spousal benefit based upon one-half of the lower wage base spouse’s benefit, beginning at the higher wage base spouse’s reaching FRA.
While this doesn’t necessarily amount to a very large payment, it is money that you are entitled to and should receive. The spouse with the higher wage base can receive this spousal benefit from FRA up to the time when election is made to begin receiving the delayed benefit based on his or her own record, at age 70. At that time, the spouse with the lower wage base will begin receiving the spousal benefit based upon the higher wage based spouse’s benefit, as well.
Quick Example
Let’s say Jane and Bob are a stereotypical couple – Jane didn’t work outside the home while their children were in school, while Bob has worked and earned Social Security credits since age 21. As a result Jane’s PIA is considerably lower than Bob’s. (Keep in mind, the roles could easily be reversed, depending upon circumstances.)
So at age 62, Jane begins drawing her Social Security retirement benefit, in the amount of $666 per month (PIA of $888). They have decided to delay Bob’s benefit as long as possible, to his age 70. Once Jane reaches FRA, when both of them are age 66, Bob can now begin drawing a spousal benefit based upon Jane’s PIA (now $1,000). So Bob can draw a spousal benefit equal to 50% of Jane’s benefit, or $500 per month.
When the couple reaches age 70, Bob applies for and begins receiving his full, delayed benefit – which is approximately $3,600 per month (PIA of ~$2,650). Jane’s benefit has grown to $800 (PIA of $1,000). Her Spousal Benefit will be based upon the difference between her PIA and 50% of Bob’s PIA – $1,325 minus $1,000 equals $325. This is added to her own benefit for a total of $1,125.
That’s all there is to it. It may not seem like a lot of money, why would you not go for it?
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Sterling Raskie, MSFS, CFP®, ChFC®
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I’ve got a question that is the reverse of the above. I took SS at 62, getting $1769/mo (at FRA/age 66 I would have gotten the max ~$2300/mo). My wife is now 62 and would get $434/mo now on her work record. Can she claim that now, then claim a spousal benefit at 66 and get more? Or would it be better to claim a spousal benefit now?
Hi, Rick –
It would be better for your wife to wait until her FRA to begin taking the Spousal Benefit, since at her present age the benefit would be reduced to the minimum amount – on your minimized amount since you started earlier. At her FRA she’ll be eligible for the Spousal Benefit to increase her overall benefit to 50% of your PIA, whereas if she were to claim the Spousal Benefit now, her overall benefit would only be increased to 35% of your PIA.
It could also be beneficial to delay receiving her own benefit to her FRA – unless you’re in a position where you cannot get by without the extra income.
This is assuming that both of you are in good health and have no reason to expect that the benefit period would be reduced dramatically.
Hope this helps!
jb
After reading this, I called SSA and was told that if the spouse(with lower wage base) took social security at 62, then, later, the spouse’s benefit would not be 50% of the worker (with higher wage base) took benefit at 70. That the spouse’s benefit would be reduced because he/she had taken the benefit early. I am confused.
Sorry about all the confusion, Jeff. I think my example was not totally complete, and I’ve updated it to better explain the situation.
The Spousal Benefit is a differential between 50% of the worker’s PIA and the Spouse’s PIA. This amount is then added to the Spouse’s benefit for the total benefit that the Spouse now receives.
Hope that helps to clear things up –
jb