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What Spouses Should Know About Social Security

By Matthew Frankel, CFP® - Apr 23, 2016 at 6:23AM

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If you're married, spousal benefits could provide you with additional retirement income.

Image source: Pixabay. 

Spousal benefits are designed to provide retirement income to spouses who either didn't work much, or whose own Social Security retirement benefit is disproportionately small compared to that of their spouse. Depending on the age at which you claim spousal benefits, the amount could be worth a maximum of half of your spouse's full retirement benefit, so it's important to know the details of how it works.

Things to know about Social Security spousal benefits
There are a few qualifications that must be met before you can claim spousal benefits.

  • First, you need to be at least 62 years old or must be caring for a child entitled to receive benefits on your spouse's record who is under 16 or disabled.
  • Second, your spouse must already be receiving their own Social Security retirement benefit. If he/she has decided to suspend their own benefit in order to accumulate delayed retirement credits, you can't collect spousal benefits on their record until they're actively collecting a retirement benefit (more on that later).
  • Once you file for spousal benefits, the Social Security Administration considers the application for both your own benefit (if applicable) and your spousal benefit. In other words, you can't only file for spousal benefits and allow your own benefit to grow.
  • When you file, your own benefit will be paid first, and then the difference between this amount and your calculated spousal benefit will be paid, if any. You'll always receive the greater of the two.
  • The full spousal benefit amount is one-half of your spouse's full retirement benefit (also known as the "primary insurance amount").
  • Finally, if you claim a spousal benefit after 62, but before your full retirement age, the benefit amount will be permanently reduced by 25/36 of 1% per month, up to 36 months before full retirement age, and an additional 5/12 of 1% beyond 36 months. Unlike Social Security retirement benefits based on one's own work record, spousal benefits do not accumulate delayed retirement credits beyond full retirement age.

This may sound a little confusing, so let's take a look at a couple of examples.

  1. Jane and her husband Mike are both 66 years old, which is the current full retirement age. Jane qualifies for a retirement benefit of $2,000 on her own work record, and Mike qualifies for a benefit of $800. Since Mike's full retirement benefit is less than half of Jane's, the Social Security Administration will pay his $800 first, and will add another $200 to arrive at the full spousal benefit amount.
  2. Frank is 66 and his wife Judy is 65. Frank qualifies for a full retirement benefit of $1,600 per month, while Judy has been a stay-at-home parent and has never worked. Her full spousal benefit amount is $800 per month, however since she is retiring one year before full retirement age, her benefit will be reduced by 8.33% per the reduction percentages I discussed earlier. So, she'll begin receiving $733 per month as a spousal benefit.

Of course, these are just two out of thousands of possible scenarios, but they should give you a good idea of how spousal benefits work.

File-and-suspend is going away
One thing that has recently changed that spouses need to be aware of is the file-and-suspend strategy, which was essentially a loophole that allowed one spouse to let their benefit grow while the other spouse collected benefits on their work record.

For example, let's say that your full Social Security retirement benefit amount is calculated to be $2,000 per month, and that your spouse never worked. Under file-and-suspend, you could file for benefits at full retirement age and immediately suspend them. As long as your spouse was over 62 at the time, he or she could begin to collect spousal benefits on your work record, which could be worth up to $1,000 per month. Meanwhile, your own benefit would accumulate delayed retirement credits (currently 8% per year). So, by doing this until age 70, your benefit would grow to $2,640 per month, even though your spouse is collecting benefits on your work record.

In fall 2015, lawmakers decided to do away with the file-and-suspend strategy. The effective date of the new law is May 1, but since April 29 is the last weekday before the deadline, it would be a good idea to get your application in by that date if you plan to take advantage of this strategy. Otherwise, it will no longer be an option.

The Foolish bottom line on spousal benefits
The two-worker household is much more common than it was in previous generations, so spousal benefits aren't quite as prevalent as they once were. Even so, spousal benefits still provide extra retirement income for many households, so it's important to know the details behind them in order to formulate the best possible retirement plan for you and your family.

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