Spousal Social Security benefits are often confusing and misunderstood. They are designed to provide benefits to a recipient based on their spouse’s or ex-spouse’s work history. Their importance cannot be stressed enough. If you can learn how to maximize your spousal social security benefits as a part of your retirement strategy, the potential increase in income could be a lifesaver.
61% of Social Security recipients rely on that income to provide more than 50% of their income needs in retirement. (SSA fact sheet June 2017)
Since so many individuals rely on Social Security as their primary source of income, it’s crucial to understand spousal Social Security benefits and the decisions and strategies that can affect the benefit amount. Doing so BEFORE retirement will improve your cash flow AFTER retirement.
What are spousal Social Security benefits?
Spousal Social Security benefits are designed to help current, widowed, or ex-spouses, who either have a limited work history or have earned significantly less than their spouses over their lifetime. That could be a stay-at-home parent, an (ex)spouse who left the workforce to go back to school, or any (ex)spouse that may have an earnings gap that would cause a significantly lower Social Security benefit.
The Social Security Administration will first compute your retirement benefit at your full retirement age (FRA) by averaging your 35 highest-earning years of earnings, adjusted for inflation, to determine your lifetime monthly average earnings. That number goes into a formula, and voila, you have your Social Security retirement benefit. You are entitled to either your benefit or 50% of your (ex)spouses benefit, whichever is higher at FRA.
The FRA is age 66 for people born in 1943-1954 and gradually increases to age 67 for people born in 1960 or later. Visit the Social Security website to determine your FRA.
Breaking it down
To aid in the digestion of all of this information, it’s best for you dear reader, to break up the spousal Social Security benefits into their three categories:
- Married couples
- Surviving spouses
Although the premise, providing for a spouse, is the same for all three groups, there are enough differences to lead to confusion between them.
Spousal benefits for married couples
Let’s jump into it with an example. If your spouse is entitled to $2,000 per month at their full retirement age, but due to your lower lifetime earnings, you are only eligible to receive $800 per month at FRA, an additional $200 will be added to your benefit to make it $1,000, half of your spouse’s amount. That is the spousal benefit you would get if you filed at your FRA or later.
It sounds simple, but there are other factors to keep in mind.
- Although the minimum age to file for spousal benefits is 62, like regular Social Security, you cannot receive a spousal benefit unless your spouse is already collecting his or her own Social Security. If in the above example, the higher benefit spouse has not filed, the lower benefit spouse cannot receive the spousal benefit. They would get Social Security based on their own earnings record, the $800.
- To qualify for spousal benefits, you must be married for a minimum of 12 months.
The effects of claiming Spousal Social Security early
Like standard Social Security, anyone who collects spousal benefits before their FRA will receive permanently reduced benefits. Let’s stay with the example above, but assume you’re 62 (but your FRA is 67) and your spouse is 67 (FRA) when you both file for Social Security.
Your spouse will receive the $2,000 per month at their FRA, but since you’re filing before your FRA, instead of getting the $800 you’re entitled to at 67, your Social Security payment is reduced by 30%. That means your benefit will be $560 per month.
What will the spousal benefit be? $760 per month. The $560 of your Social Security plus the $200 difference between your benefit amount at your FRA and 50% of your spouses at his/her FRA.
If both you and your spouse take Social Security early, there will be a significant reduction in benefits over your lifetimes. The more significant concern is the effect it will have on survivor benefits, which will also see a permanent decrease (more on that below).
No delaying benefit
Every year you delay Social Security, up to age 70, you’ll see your benefit increase by 8%. That’s a nice return, but unfortunately, it doesn’t apply to spousal benefits. There is no increase for postponing your spousal benefit beyond your full retirement age.
Before November 2, 2015, when a new law went into effect, anyone could file a restricted application which allowed you to receive your spousal benefits and delay receiving your own Social Security benefits based on your earnings record until later. It gave you the opportunity to switch from getting a spousal benefit to collecting your potentially higher benefit amount at age 70.
That law eliminated the beneficial loophole for everyone born after January 1, 1954. If you were born before that date, you are still eligible to file a restricted application.
Upon the death of a spouse, as long as you were married for at least nine months (exceptions apply), you’ll be eligible for survivor benefits. Survivor benefits entitle the surviving spouse to the higher of his or her own Social Security benefit or their deceased spouse’s, but not both. Survivor benefits are an essential retirement planning strategy – it’s life insurance.
“Couples should never decide just to take Social Security on a whim, do some analysis if for no other reason than to determine the optimal survivor benefit – your surviving spouse will thank you.”
Survival spousal Social Security benefits are unique in many ways. You can collect the survivor benefit as early as age 60, but you’ll only receive 70% of the amount you’d get if you wait until your FRA. There are also many ways you can maximize the survivor benefit.
The most common, and preferred scenario, because it means you’re both 70+, is when you and your spouse are both receiving Social Security at the time of your spouse’s passing. You would receive the larger of your benefit or your spouse’s, but not both. That’s straightforward, but you still need to plan appropriately for the surviving spouse to get the highest benefit possible when you’re in your 60s.
Planning for the future
If you and your spouse are both alive, and neither has filed for Social Security, have the highest earner delay Social Security as long as possible, maybe even until age 70. It’s a simple way to maximize the survivor benefit. It creates a more substantial monthly Social Security payment that becomes the survivor benefit after the first spouse passes.
If your spouse had started receiving Social Security benefits, but you had not at the time of his or her passing, you can choose to collect a survivor benefit, even at age 60. You can allow your Social Security amount to grow and then switch from the survivor benefit to your Social Security benefit at age 70. This strategy only works if your Social Security income would be higher than the survivor benefit income when you turned 70.
If you are collecting Social Security but your spouse had not been, and he or she passes away on or before their FRA, the survivor receives the deceased spouse’s FRA benefit. If the surviving spouse files before their FRA, there is a reduction in the amount of the benefit, just like regular Social Security.
If the deceased spouse never filed for Social Security and passed away after their FRA, the surviving spouse will receive the amount the deceased spouse would have been entitled to on the date of death, including the additional delayed retirement increase. Again, there would be a reduction if the surviving spouse applied before their FRA.
The Social Security decision has a lifelong impact. Weighing all of your options, risks, and income needs is an intimidating task, and I’ve only touched on a couple of possible scenarios. The wrong move could hurt you or your surviving spouse.
Ex-spouse survivor benefits
If you’re an ex-spouse, you may still be eligible for spousal benefits. There are, however, different rules based on whether your ex is living or deceased.
Ex-spouse is still alive
You are entitled to survivor benefits if:
- You and your ex-spouse were married for at least ten years
- You have not remarried. If you remarry and are collecting benefits on your ex-spouse, remarriage will disqualify any spousal benefits.
- The divorce was finalized more than two years ago
- Both you and your ex-spouse must be 62 or older
If you meet those qualifications you’re eligible for the spousal benefit, 50% of your ex’s Social Security amount at their FRA or your benefit, whichever is higher. The one difference compared to if you were married – you don’t have to wait for your ex to file for Social Security to receive the spousal benefit.
Ex-spouse has passed away
You are entitled to survivor benefits if:
- Your marriage lasted at least ten years
- You haven’t remarried before age 60
- You remarried after the age of 60: If the surviving spouse remarries after 60, you have a unique situation where there are three options available.
- Keep receiving the survivor benefit based on the income of the ex-spouse
- Take Social Security on your work history
- Obtain a spousal benefit based on the new spouse’s work record.
This is valuable information for a widow or widower in their late fifties planning to get married again. If they delay the wedding until after their 60th birthday, the three additional options above will be available.
Spousal benefits are some seriously complicated you-know-what!
I’ve only touched on some of the more common scenarios! Hopefully, you now see the importance of Social Security planning. It’s the timing and coordination of Social Security that affects how both you and your spouse benefit before and after one of you passes.
Too many people overlook the opportunity to maximize their spousal Social Security benefits. A little time and effort could create additional lifetime income, not just for you, but also for your surviving spouse.
I hope you enjoyed this post. If you’d like to learn more about Social Security, please check out our other posts, When Should You Take Social Security?, Plan to Reduce Taxes In Retirement or How much will your retirement rely on Social Security?