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Social Security: Keep This in Mind Before Claiming Spousal Benefits

If you're about to claim spousal benefits stemming from your partner's work history, there's one misconception you need to clear up now: Although your monthly benefit will be reduced for claiming it before full retirement at age 66, you're not rewarded for waiting even a single day past then.

Spousal benefits vs. retirement benefits
If you're familiar with the Social Security system, this may come as a surprise. Under the formula that allots retirement benefits, there's a significant incentive for prospective retirees to wait as long as possible before claiming benefits:

If a retiree applies at the earliest possible moment -- that is, the month after turning 62 -- then that person's benefits are docked by 25%. But if he or she holds out beyond full retirement -- currently age 66 -- then the opposite is true.

For every full year of deferment between ages 66 and 70, your monthly benefits increase by 8%. The maximum boost to a retiree's check equates to an impressive 32%.

But spouses, by contrast, only get the downside of this. In other words, if you apply for spousal benefits early, then your monthly take is subject to early benefit reductions.

And as the following table shows, the decrease is sharper for spouses than it is for primary beneficiaries.

A spouse that takes benefits at age 62 sees his or her monthly check fall by 30%. Alternatively, a retiree doing the same thing sees his or her benefits reduced by only 25%, or 5% less than a similarly situated spouse.

To add insult to injury, moreover, there's no payoff for a spouse to wait beyond age 66, because spousal benefits are capped at 50% of the primary retiree's benefits, irrespective of when they're taken.

Now, just to be clear, this has absolutely no bearing on survivor benefits. That is, if the primary beneficiary predeceases his or her spouse, then the spouse steps into the primary beneficiary's shoes, if you will, for the purposes of Social Security.

With all of this in mind, the takeaway here is simple. If you're on the verge of claiming spousal benefits, I'd urge you to do so no later than the month after turning 66, as waiting any longer could cause you to needlessly leave money on the table.

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Read/Post Comments (11) | Recommend This Article (62)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 15, 2014, at 7:49 AM, gadfly1000 wrote:

    This article has misleading and inadequate information.

    1) Misleading when it says, "spouses, by contrast, only get the downside of this." They do not. They get the upside of waiting from age 62 to 66, just as the primary beneficiary does, They just don't continue increasing the benefit beyond that age. (Also, look at the table. The spousal benefits grow more than 8% in certain years as one waits.)

    2) Inadequate because it fails to state that when a spouse starts spouse benefits before age 66, he/she MUST also take his/her retirement benefits as well, and these will be permanently reduced.

    Also, it is only when the spouse is also 66 that the primary beneficiary can "start and suspend" so that the spouse gets full spouse benefits while the primary benefit continues to grow.

    An important fact about survivor benefits: if the primary beneficiary waits beyond 62 to start and then predeceases the spouse prior to age 66, survivor benefits will be paid AS IF the primary beneficiary had waited to age 66, whereas if the primary beneficiary starts below age 66 the survivor benefits will be permanently reduced.

  • Report this Comment On June 15, 2014, at 7:55 AM, rchrisclarke wrote:

    The value of money is not merely the bottom line. It is also contingent on having the good health and longevity to enjoy it. By this i mean that extra dollars at age 85 when I cant remember what i had for breakfast and my health is too poor for travel are valueless. Take into account that if you take a smaller pension early and enjoy it, you can come out ahead of the game. The routine calculations showing 30% increase in monthly payments for a later start fail to notice that the years of early payments you might have received are lost. Also look at the actuarial tables; the chances of leaving all your pension to Uncle Sam are substantial.

  • Report this Comment On June 15, 2014, at 9:41 AM, davidv935 wrote:

    Agree with part of gadfly1000 comments except for #2 - a spouse has the option of taking a spousal benefit or receiving their SS benefit based on their own work history which ever is higher. But they cannot draw both.

    What the article and the SS website doesn't discuss at all is what the issues are when the spouse is older than the primary beneficiary. I'm 64 and my wife is 66. Her age becomes almost irrelevant in this spousal benefit discussion because her entitlement only exists when I decide to retire and apply for SS benefits. Right now, based on the SS offset of $1 for every $2 I earn, neither she nor I are entitled to anything until I turn 66 or retire.

  • Report this Comment On June 15, 2014, at 9:59 AM, basha0810 wrote:

    However, keep THIS in mind. If you don't take the $750 per month over the course of 8 years from 62 to 70, that will be a loss of $72,000 that you could have saved and invested. All social security is doing by raising payments at the age of 70 when they say that's the best time to claim, is making up for the 72 grand you should have gotten. They are trying to make you think that you're getting more in benefits when in reality you've just lost 8 years of precious life and all of that money THEY wanted you to put off so that they don't have to pay is your return investment for waiting and it's not for you, it's for THEM. Since social security is going broke, they especially want to put off paying out for as long as they possibly can. It doesn't take a rocket scientist to see right through this. I'm taking social security at 62. I could be dead by 70 and I just don't see a benefit by waiting. I only see that loss of $72,000 that could have gone in MY pocket and not theirs.

  • Report this Comment On June 15, 2014, at 11:44 AM, CropDuster wrote:

    This idiotic and overly-complex government sponsored Ponzi scheme, humorously called a 'retirement program'. Or, as FDR promised, "Will take just one percent from the worker and the employer. An amount which will never be increased." It's past time for SS to be phased out to allow workers to manage their own retirement.

  • Report this Comment On June 15, 2014, at 12:30 PM, JohnMaxfield37 wrote:

    Gadfly1000,

    Regarding my statement that "spouses, by contrast, only get the downside of this"....

    I'm referring to the fact that spousal benefits are subject to early retirement reductions prior to age 66 ( the "downside") while they aren't entitled to delayed retirement credits between the ages of 66 and 70 (the "upside").

    To your point, they do get an "upside" from waiting until full retirement (age 66). However, the "upside" you refer to is simply the fact that they aren't subject to a penalty.

    In other words, these are simply different sides of the same coin.

    Regarding your second point; it is valid. However, it's also beyond the scope of this particular article. Here's a article, for example, that discusses the "claim and suspend" strategy separately:

    http://www.fool.com/retirement/general/2014/06/01/social-sec...

    Thanks for reading!

    John

  • Report this Comment On June 15, 2014, at 9:10 PM, gadfly1000 wrote:

    JohnMaxfield37,

    "To your point, they do get an "upside" from waiting until full retirement (age 66). However, the "upside" you refer to is simply the fact that they aren't subject to a penalty. "

    I'm just saying BOTH spouses get this "upside" between 62-66.

    "Regarding your second point; it is valid. However, it's also beyond the scope of this particular article. "

    Yes, claim and suspend goes beyond the scope, but the important point is that between 62-66 one cannot JUST start spousal benefits. One's own benefits must be turned on as well.

  • Report this Comment On June 15, 2014, at 9:13 PM, gadfly1000 wrote:

    davidv935,

    "Agree with part of gadfly1000 comments except for #2 - a spouse has the option of taking a spousal benefit or receiving their SS benefit based on their own work history which ever is higher. But they cannot draw both."

    You are quite right. My point was that the spouse 62-66 cannot choose to start ONLY spousal benefits. The spouse's own benefits, if any, must be started as well, and the calculation is then as you say.

  • Report this Comment On June 15, 2014, at 9:21 PM, gadfly1000 wrote:

    basha0810,

    "that will be a loss of $72,000 that you could have saved and invested."

    Not a very smart idea.

    First, waiting means being able to invest without using/risking any capital (!), and having a guaranteed 8% annual return indexed for inflation.

    Second, doing your own investing is not only more risky and unlikely to provide such guaranteed return, but you only accumulate the $72,000 capital over 8 years in your example. You don't have $72,000 to invest at the beginning.

    The rest of your argument is hogwash. Social Security is not scheming to get you to wait. Everybody, on average, gets exactly the same total return. That's what actuarial is about. You get less for longer or more for a shorter period.

  • Report this Comment On June 15, 2014, at 10:16 PM, yardomd wrote:

    Giving money to somebody to manage it is like throwing it away. Example: My 401K earned 2% in 6 months last year, while my self directed Roth IRA earned 20% in the same time period. I operate multiple businesses for each member of the family.

    The astounding fact is, that only 2% of us know to save money and profit from investing. If 4% of us could do this, we may save America and the World. The principles are so simple that they could be learned in kindergarden. How come they are not.

  • Report this Comment On June 16, 2014, at 12:23 PM, Adel wrote:

    I am 65. My husband is 70. Should I wait until I am 66 to get spousal social security benefits, or apply now? I plan to switch to mine when I turn 70.

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John Maxfield
JohnMaxfield37

John has been writing for The Motley Fool since 2011. As a senior banking analyst, he covers the financial industry and the nation's largest banks in particular. He has a bachelor's degree in economics from Lewis and Clark College and a juris doctorate from Southern Methodist University. He's a licensed attorney in the state of Oregon, and resides in Portland with his wife and twin sons. View John Maxfield's profile on LinkedIn

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