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How is the Spousal Benefit calculated? I’ve covered this topic in several prior posts, but thought I’d give it another shot, to hopefully close this chapter for now. I’ve heard conflicting answers from various corners of the SSA world – both personally and from reader communications. Too often there is a pat answer that the Spousal Benefit, if taken at FRA (Full Retirement Age) is always 50% of the other spouse’s PIA (Primary Insurance Amount). This is not always the case, if the individual has begun receiving retirement benefits based on his or her own record before FRA and then later begins receiving the Spousal Benefit.
When an individual begins receiving retirement benefits based upon his or her own record has a lasting effect on the amount of all retirement benefits that this individual will receive, including Spousal Benefits. This is due to the fact that the Spousal Benefit, when the retirement benefit is present, is an offset amount based upon the difference between the maximum Spousal Benefit (50% of the other spouse’s PIA) and the PIA of the first spouse.
The early retirement benefit amount calculation is fairly straightforward (at the link you’ll find a detailed explanation). The individual’s PIA is reduced by a factor based upon the number of months prior to Full Retirement Age that he or she has applied for benefits.
Knowing the individual’s PIA, the next factor in the calculation is the other spouse’s PIA, and the maximum amount of Spousal Benefit will be 50% of that PIA. This factor is available if the individual is at least Full Retirement Age. The reduction in overall benefits is the difference between 50% of the second spouse’s PIA and the first spouse’s PIA.
Example
Okay, this is confusing as all get-out without an example. Let’s say Dick and Jane are a married couple, with PIAs of $2,200 and $800 respectively. Dick and Jane are both age 66, Full Retirement Age. Jane started receiving her own retirement benefit at age 62, which is reduced to $600 since she started early. Dick intends to delay his retirement benefit to age 70 for the maximum benefit. Dick files and suspends his retirement benefit, which then allows Jane eligibility to file for the Spousal Benefit, while Dick’s benefit continues to accrue delayed retirement credits.
How much of a total benefit will Jane receive, under these circumstances? Here’s how it works: Jane’s PIA is subtracted from half of Dick’s PIA – $1,100 minus $800 = $300. This amount is the Spousal Benefit offset for Jane, which is added to her own benefit for her total benefit. Adding $300 to $600 equals $900. This is $200 less than 50% of Dick’s PIA (remember the pat answer from before?).
Another Example
Okay, what if there are a few changes to the above example: Dick is two years older than Jane – she’s 64 and he’s 66. He still files and suspends at age 66, his Full Retirement Age, and Jane then applies for the Spousal Benefit at her current age of 64.
Here is the way this calculation works (and some shorthand for the reductions):
- Determine Jane’s reduced monthly benefit ($600)
- Take Jane’s unreduced PIA and subtract it from half of Dick’s unreduced PIA ($1,100 minus $800 = $300). This amount is referred to as the Excess Spouse Benefit amount.
- If Jane is under Full Retirement Age (FRA), determine the number of months before FRA – in her case, it’s 24, as age 64 is 24 months before age 66.
- Multiply the Excess Spouse Benefit amount by the amount determined by subtracting her number of months prior to FRA from 144. ($300 times (144 minus 24) equals $36,000).
- Then divide that number by 144 ($36,000 divided by 144 equals $250). $250 is then added to her own retirement benefit amount to come up with the total benefit ($250 plus $600 equals $850).
Now, taking this one step further: If Jane is eligible for the Spousal Benefit more than 36 months before FRA (such as if Jane was 62 when Dick is 66), then the above calculations would be changed slightly:
- Determine Jane’s reduced monthly benefit ($600)
- Take Jane’s unreduced PIA and subtract it from half of Dick’s unreduced PIA ($1,100 minus $800 = $300). This amount is referred to as the Excess Spouse Benefit amount.
- If Jane is under Full Retirement Age (FRA), determine the number of months before FRA – in this case, it’s 48, as age 62 is 48 months before age 66.
- Multiply the Excess Spouse Benefit amount by the amount determined by subtracting her number of months greater than 36 prior to FRA from 180. ($300 times (180 minus 12) equals $50,400).
- Then divide that number by 240 ($50,400 divided by 240 equals $210). $210 is then added to her own retirement benefit amount to come up with the total benefit ($210 plus $600 equals $810).
It should be noted that if Jane had not filed for her own benefit before FRA and she waits until FRA to file for the Spousal Benefit, she will be eligible for a Spousal Benefit equal to 50% of Dick’s PIA – assuming that Dick has filed for his own benefit, or filed and suspended. Jane does not have to take her own benefit at this time, especially if her own benefit will potentially be greater than the Spousal Benefit.
Hope this helps to clear things up a bit. If not, please leave your questions in the comments section below and we’ll work together to come up with answers.
Sterling Raskie, MSFS, CFP®, ChFC®
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When I called SS today before I left this message, I got a completely different answer. The actual figures I used were a bit different to fit our actual circumstances but were close, and the spousal figure I got from SS was quite a bit lower. Did they make a mistake, or am I still confused?
To make sure I understand, the differential is just the difference between the husband’s and wife’s PIA regardless of the age they take SS? Then you take that differential and apply a factor based on the age of the spouse at the time the spouse applies for the spousal benefit (86.7% if the spouse is 64)?
If that is the case, then in the scenerio, the spouse could get $750 total if she waited until age 66 to take the spousal benefit? I thought you could never get the full half of the husband’s PIA if the wife began drawing on her own work record prior to reaching age 66.
My apologies, Sheila – I responded to your original question too quickly. The wife in your example has a PIA of $700 and filed at age 62. Because of this, her reduced benefit is something like $525. The $43 spousal increase is added to that amount, for a total benefit of roughly $568.
Since she has filed early, even if she delays to her FRA, she will only receive the difference between her PIA and half of her husband’s PIA – $1500/2 – $700 = $50. This amount is added to her reduced benefit for her total benefit.
My apologies for the confusion.
jb
I am still having trouble figuring the spousal benefit.
Scenerio: Wife is older than husband and made less money during her career. Wife’s PIA is $700. She took Social Security at age 62 and gets a reduced benefit. Her full retirement age is 66. Husband plans to take SS at age 63 when wife is 64. His PIA is $1,500 and his full retirement age is 66.
When the husband retires, does Social Security automatically recalculate the wife’s SS benefit to take the spousal benefit into consideration? If so, how is this calculated? In this scenerio, what will the wife end up getting in SS benefits?
No, in order for the wife to receive the Spousal Benefit, she will need to apply for the benefit when or after her husband has filed for his own benefit. This is not an automatic calculation.
In rough figures, assuming that the spousal differential is $50, her benefit (if she files for spousal at age 64) will be approximately $43, so her total benefit will be approximately $743.
jb
i just wanted the pErcents for the 2 examples !
This is so interesting and yet difficult to grasp. We actually went to the SS office in our town Eugene, Oregon and they said we could NOT do the Spousal Benefit. Yet when I read your example we nearly fit the Dick and Jane here and the reverse of Dick and Jane in your other article of Restricted Application of Social Security Spousal Benefits (this article has Jane older). We are just ready to do SOMETHING with SS as I (Lynn – 63 1/2) am retiring and we need a bit more income. Gary is 65 in Nov. and not planning to retire until 70. We keep, literally, going back and forth daily as to who might file, who might get spousal benefits, what would be the BEST use of the $ we have given Uncle Sam all these years. Is there a way to give you more info or talk on a phone. ?? Have just found you here on Facebook and really find your articles very helpful. On another completely other subject we need info about inheritance from my parents (lynn) within the next 5 years I would think. My Dad is 94, and Mom 88. But for now need to figure this SS thing out. Thank you.
I could give you more info here if needed. Not sure how to do this.
Thanks, Lynn and Gary
Lynn – I replied to you via a separate email.
Bottom line is yes, I do work with folks from out of state on issues just like yours.
jb
Wife is lower earner age 64. Husband is higher earner age 63.
Wife begins receiving her own benefit now at age 64 (reduced below her own PIA) for $750/mo.
Husband starts taking PIA at 66 years old ($2400/mo.) Wife is then eligible for spousal benefit of 50% or $1200/mo. Is her spousal benefit reduced because she took her own benefit at 64?
Yes, the total benefit that the wife would receive is reduced by the amount of her reduction that occurred when she claimed benefits early. In other words, assuming that the wife would have received approximately $868 if she filed at her own FRA of 66, her reduction is $118 ($868 – $118 = $750). When she files for spousal benefits at age 67 (husband age 66) her TOTAL benefit would be approximately $1,082 ($2,400 / 2 = $1,200 – $118 = $1,082). Cost of living adjustments have not been factored into this calculation.
Hope this helps –
jb
The more I read about spousal benefit the more confusider I become. If spouse A files for and suspends benefits at FRA and instead claims the spousal benefit based on the earnings of Spouse B, is there any penalty applied to Spouse B when they start to draw benefits? There is a significant age difference between my spouse and I. She will not reach FRA until after I turn 70.
Hi Bob –
Don’t feel alone, this is a most confusing subject.
With regard to your question, for Spouse A (the older) to claim Spousal Benefits at his FRA, Spouse B (the younger) must have filed for her benefits, which will result in a permanent reduction to that retirement benefit for her.
Incidentally, Spouse A would not file and suspend at FRA if he is hoping to only claim the Spousal Benefit, he would simply file a restricted application for Spousal Benefits only – assuming that Spouse B has filed for benefits at the same time (or possibly earlier).
Hope this helps – if not, feel free to send more questions.
jb
Hi Jim,
I bought your book, read it and thought I had mapped out a good strategy for taking SS benefits for both my wife and I, but after reading this article, I think I missed a critical factor in my evaluation of various options. Before I get into my planned strategy, I have another question in regard to determining SS Benefits (I hope this reply doesn’t get too long).
In looking to determine what my wife’s early SS benefit would be, considering she would start at 62 (her FRA is 66), I always thought, and the formula you included in your Aug 26, 2011 article confirms this, that her benefit would be reduced by 25%. Yet when I go to the SS Website and look at her numbers, SSA indicates that her FRA benefit (age 66) would be $1099 and her benefit if started at age 62 would be $802, which is 73% of her FRA benefit. Do you know why the SS Website doesn’t show the age 62 benefit to be $824 which is 75% of her FRA benefit of $1099? The only thing I can think of is that she is currently 60 years old and still working and maybe the estimated benefit for FRA is taking into account future earnings and future COLA adjustments.
The major point that I think I missed is that once an individual (in our case, my wife) begins to take an early reduced benefit, then when she applies for Spousal Benefit, that benefit will also be reduced. In looking at our options, I thought she would get a Spousal Benefit of 50% of my FRA benefit when she applied for Spousal Benefit after I reached FRA (age 66) even is she started her benefits early.
OK, so here is our strategy, but I may need to take a look at it again if, in fact, I missed this major point on reduced Spousal Benefit. Background information: My wife is 8 months older than I and we are, now, both 60 years old. Both of us have a FRA of 66. Her FRA estimated benefit is 46% of mine. (for simplicity standpoint I have rounded to the nearest $100: Her’s =$1100, mine = $2400). She still works, and I am retired. We don’t need SS benefits for our monthly living expenses and we are both currently in good health (thank God), so we are looking to maximize benefits, especially her survival benefit. So, we were planning on starting her benefit (reduced) at age 62 (Her benefit would be either $802 or $824 based on the question above). Then when I turned 66 (she will already be 66) I would apply for a Spousal Benefit based on her record and she would continue with her own benefit (my Spousal benefit would be $550 [110*0.50] and she continues with either $802 or $824). Then when I turn 70, I would apply for my benefit and she will apply for a Spousal Benefit based on record (my benefit would be $3168 [2400*1.32] and her Spousal would be $1200 [2400*0.5] based on my current, probably wrong, assumption). First of all, does this strategy sound reasonable and secondly, does it fit given SSA rules?
Thanks for your time and willingness to share your knowledge on the subject of SS with all of us.
John
John –
The answer to the first question is likely as you guessed, the numbers are projected and the SSA may be assuming further earnings (or not assuming further earnings) to make up that difference. The final authority will be the SSA so whatever number they’re giving you is the “right” number, but it never hurts to question them to ensure that the calculations are done correctly.
Your strategy looks sound, but as you’ve mentioned, your wife’s final Spousal Benefit will be something less than 50% of your PIA since she filed early for her own benefit. The actual benefit will be 50% of your PIA minus the differential between her own PIA and her own (reduced) benefit. Using your figures that would give her a total benefit of $902 or $924.
Hope this helps –
jb