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Getting the Most from Spousal Social Security Benefits

Getting the Most from Spousal Social Security Benefits

June 05, 2024



Transcript:


Hey, guys. Mike Frontera here. Back with another Retirement Theory video. Now, one of the most complex areas of retirement income planning deals with Social Security and especially coordinating two spouses Social Security Benefits together to maximize what they get.

Now within the full framework of a retirement income picture that may involve investments, pensions, taxes, earned income, the decisions for when to take Social Security can become even more complicated. So today I just want to focus on the spousal benefits from Social Security, so that you have some understanding of how those work. And then you can deal with how they're interconnected with the other aspects of your retirement income plan.

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Okay, now that we're going to be diving in, let's define some terminology first so that we can speak about things a little bit more concisely. For simplicity, I'm going to refer to someone's Social Security retirement benefit at their full retirement age as their primary insurance amount, or PIA. We are also going to refer to full retirement age as its acronym FRA. I'm going to refer to the spouse who has the higher PIA as the primary earner. I'm also going to refer to the spouse with the lower PIA as either the lower earning spouse, or simply just the spouse. And finally, I'm going to assume in all these examples that both spouses are born in 1960 or later, which would make their full retirement age for Social Security at 67.

So that brings us to what we're talking about today, which is these Spousal Benefits. So let's go through and talk about how these Spousal Benefits work. Spousal Benefit eligibility is based on you being married for at least one year, with some minor exceptions. Also, former spouses, if you've been married at least ten years and you are not currently remarried, these will also potentially apply to you.

Spousal Benefits come into play when the spouse’s pay is less than half of the primary earner’s PIA. And the Spousal Benefit is based on getting the spouse 50% of the primary earner’s PIA.

So just a quick example here. We've got Jerry who has a $2,000 PIA and Ginny who has a $700 PIA. So, assuming both of them claimed at their full retirement age or FRA. Ginny would actually, instead of getting $700 a month, would receive a $1,000 per month, or 50% of Jerry's benefit. Now, in all cases for married couples, Jerry or the higher PIA spouse would have to have claimed his own benefits for Ginny to receive any Spousal Benefits.

There is an exception for this for former spouses. It's what I like to call the spite clause. That is, if the former spouse who was the primary earner knows that spousal benefits cannot be received without them having to make a claim first, could they just keep delaying and delaying and not let you receive benefits off their record? Well not really. There's a rule that says, you've been divorced for at least two years, and the primary earning spouse is at least 62 years old, that you can make a claim for spousal benefits at any time assuming that you are otherwise eligible. Oh, and by the way, if you've had multiple former spouses and you've been married to each of them for at least ten years, you actually can choose which spouse would provide the best benefit and claim spousal benefits off of their record. Let's go back to the general case for married couples.

So let's take a look at a quick example. So here we have Ginny claims at her age 62, her earliest possible claim age. Her $700 of benefits is reduced to 70% or $490 if she's eligible for Spousal Benefits, she needs to wait until Jerry claims his benefits in order to get them. So now how did I get that 70% reduction? While the early benefit claim reduction is found in this guide here on SSA.Gov, and you can see the amount that your full retirement age or FRA benefit is reduced, actually goes down month by month. It's not an annual or a, and that is a big thing that trips a lot of people up is they typically on their benefits statements will show you at age 62 at your full retirement age and also at age 70. But any month in between, there is a prorated calculation for how that those benefits are either reduced or increased from claiming either before or after full retirement age. Finally, and now, this is an important piece, no matter which age the primary earner claims, it doesn't matter. 62, 65, 67, 70, whatever. When we were talking about receiving those spousal benefits, those are always going to be based on a maximum of 50% of the primary earner’s PIA, or primary insurance amount. That is going to be the maximum spousal benefit. So what that means is there are no delayed retirement credits for waiting on your spousal benefits until after your full retirement age. So, let's go back and we're going to take another look at a different example.

Again we've got Jerry here. His PIA is $2,000 per month and Ginny’s is $700 per month. Ginny claims her spousal benefits at her full retirement age. I'm assuming in this case, in fact, in all of these scenarios that Jerry has already claimed. So, again, doesn't matter when he does. So, I'm only talking about the situation where Jerry has already claimed, and Ginny is deciding when she's going to claim her Spousal Benefits. So, if she claims at full retirement age, those benefits are going to be calculated as follows. It's going to be the primary earner’s PIA times 50% minus the spouse's full PIA.

In that situation, Ginny is going to receive the full $300 spousal benefit top off so that she ends up with 50% of Jerry's PIA, or $1,000 per month. Now, if Ginny decides instead to claim early at 62 she would receive 70% of her retirement benefit or $490. And then she would also have an early reduction for Spousal Benefits, which we can find in this separate guide, also available on SSA.gov that says that she would receive 65% of Jerry’s PIA top off, which would be 65% of $300 or $195. So her total benefit would be $685 per month. So obviously there's a good size reduction from the $1,000 she could receive at FRA. Now here's what's interesting. If she instead decided to delay her claim beyond full retirement age, she is still capped out at that 50% of Jerry's PIA. So you'll see her benefit does get credited for those delayed retirement credits, so she gets 124% of what she would receive at FRA. But her spousal benefit then actually gets reduced to $132 per month, so that her total benefit is still at $1,000 per month. So, in most cases, it really will not make sense for Ginny to delay her claim beyond her own FRA because she's not going to get any more money for doing so.

Now, what about the situations where Jerry hasn't yet filed? So this one's actually also pretty interesting. So, if Ginny files at 62 and Jerry hasn't yet filed, Well, here Ginny is going to take her benefit at age 62, so she receives $490. Jerry hasn't filed, so she is not yet eligible for Spousal Benefits. She will become eligible for Spousal Benefits as soon as Jerry files, and that will impact what her spousal benefit is. So, if Jerry decides to file when Ginny is at her FRA, she will receive that full max spousal benefit of $300. So her total would actually be at that time $790, which is the combination of her retirement benefit of $490 and the maximum spousal benefit of $300. So again, I'm just touching on what these Spousal Benefits look like and how the interplay between them is so important and how those benefits are calculated. When we start factoring in Survivor Benefits, the calculations change as well depending on when both spouses claim. So we'll hit that in another video.

In the meantime, if you've got questions for me, let me know. Come visit me at www.retirementtheory.com or send me an email at mike@retirementtheory.com. Thanks for watching. See you next time.