Author: Matthew Frankel, CFP | February 04, 2019
If you're married, read up on how you could be affected
Think Social Security is a simple program that just provides retirement benefits to older Americans? Think again. Not only are there several variables that make up your Social Security retirement benefit, but that’s just one aspect of the Social Security program.
Social Security can be especially complicated for married couples. Here are 14 things that all married couples should know about Social Security before they reach the age of eligibility.
Spousal benefits can provide extra income for many married couples
Social Security is more than just benefits for retired workers. One additional type of Social Security benefit is designed to provide additional income to married couples where one spouse either didn’t work much, or earned comparably little relative to the primary-earning spouse.
We’ll take a closer look at how Social Security spousal benefits work over the next few slides, but the basic idea is that a spousal benefit can provide a monthly benefit of as much as one-half of the higher earner’s full retirement benefit. For example, if you are entitled to a full retirement benefit of $1,500 per month and your spouse never worked, a spousal benefit could provide them with as much as $750 in monthly income.
You’ll get a lower spousal benefit if you claim it early
It’s well-known that claiming Social Security retirement benefits early results in a reduced benefit amount. The same is true for spousal benefits, although the reduction rules are a bit different.
If claimed at full retirement age, a spousal benefit will be equal to half of the higher-earning spouse’s benefit. On the other hand, if a spousal benefit is claimed before full retirement age, it will be permanently reduced according to these two rules:
- 25/36 of 1%
(8.33% per year) for each month before normal retirement age, up to 36 months
- 5/12 of 1% (5%
per year) for each month beyond 36, as early as age 62.
The average spousal benefit
As of December 2018, there were nearly 2.4 million spouses of retired workers who were collecting spousal benefits. They were paid a collective $1.825 billion in monthly benefits, and the average monthly spousal benefit check was $763.04. That translates to $9,156 per year and can make a big difference in a married couple’s quality of life after retirement.
You can’t get a spousal benefit until your spouse claims their own benefit
One of the conditions that must be met for a spousal benefit is that the higher-earning spouse must be collecting their own retirement benefit. If you’re expecting a spousal benefit, it doesn’t matter if you have reached your full retirement age -- if your spouse hasn’t claimed their own benefit yet, you have to wait until they do.
You need to be at least 62 years old to collect a spousal benefit
The other main requirement is that, generally speaking, you need to have reached the age of Social Security eligibility (62) before you can claim a spousal benefit. If you’re expecting to be eligible for a spousal benefit, it doesn’t matter how old your spouse is if you haven’t reached the age of eligibility yet.
For example, if your spouse is 70 years old and collecting Social Security, but you’re only 60, you’ll need to wait another two years until you can apply for a spousal benefit.
There is one main exception. If you haven’t reached the age of eligibility, but you are caring for a child under 16 or disabled who is also entitled to benefits on your spouse’s work record, you can start collecting a spousal benefit at any age.
Spousal benefits don’t grow after full retirement age in the same way as retirement benefits
We’ve already mentioned that spousal benefits are reduced if claimed before the recipient’s full retirement age. However, it’s also important to know that unlike Social Security retirement benefits, there is no such thing as an increase in spousal benefits for waiting beyond full retirement age. In other words, if you are entitled to a spousal benefit and your full retirement age is 67, there’s no reason to wait any longer to claim it.
Here’s one rule of thumb to keep in mind. It can often be a good strategy for an eligible individual to wait as long as possible to claim Social Security in order to permanently increase their benefit, but remember that in order for a spousal benefit to be paid, the higher-earning spouse must also be collecting benefits. So, if a spouse is entitled to a benefit based on your work record, it generally doesn’t make sense to wait to claim benefits beyond their full retirement age.
The earnings test applies to primary workers as well as spouses
If you haven’t yet reached full retirement age and are still working, the Social Security earnings test can cause some or all of your benefits to be withheld if your earnings exceed a certain threshold.
Now, this is rarely an issue with spousal benefits. After all, spousal benefits are generally only paid when one spouse either doesn’t work or earns a relatively low income. However, it’s important to point out that the earnings test does apply to spousal benefits. For 2019, here are the earnings test thresholds so you can determine if you (or your spouse) might be affected:
- If you will reach
full retirement age after 2019, $1 of benefits will be withheld for
every $2 in earnings above $17,640 per year ($1,420 per month).
- If you will reach
full retirement age during 2019, $1 of benefits will be withheld for
every $3 in earnings above $45,360 per year ($3,780 per month), and only the
months prior to the month of your birthday will be considered.
Your own retirement benefit will always be paid first
One common misperception about spousal benefits is that retired workers can receive their own retirement benefit and a spousal benefit.
To be fair, this is halfway true. Here’s how it works -- your own Social Security retirement benefit (based on your own work record) is always calculated and paid first. If your full retirement benefit (also known as your primary insurance amount) is less than half of your spouse’s, a spousal benefit kicks in to make up the difference.
In other words, if your own Social Security retirement benefit is more than half of your spouse’s, a spousal benefit never comes into play.
The application process for spousal benefits is easy
If you think you may be eligible for a spousal benefit, there’s nothing special you need to do. You use the exact same Social Security application that is used for standard retirement benefits. It’s online and should only take about 15 minutes to complete. The SSA will use the information from this application to assess your eligibility for a retirement benefit based on your own work record, as well as for a spousal benefit.
If the spouse with the higher benefit dies first, the other may be able to assume their benefit
Aside from spousal benefits, another part of Social Security that is important for couples is survivors benefits. Now, there’s more to survivors benefits than can be explained in a paragraph or two, but here’s one thing that couples should definitely know:
If you die, your widow(er) is entitled to 100% of your Social Security retirement benefit if they’ve already reached full retirement age. This is not in addition to their own benefit -- it's either-or. For example, let’s say that you and your spouse are both 75 and your Social Security retirement benefits are $1,800 and $1,200, respectively. If the spouse with the $1,800 benefit dies first, the other spouse can essentially replace their own benefit with that amount.
If you have young children, they may be eligible for benefits as well
Did you wait a while to start having children, or did you adopt later in life? Many people are surprised to learn that if you’re collecting Social Security and have children, they may be eligible to collect a Social Security benefit of their own, of as much as half of your full retirement benefit.
To qualify, you must be collecting Social Security retirement benefits and your children must fit into one of these three categories:
- Under 18 years of
- No older than 19 and
still enrolled in high school
- Disabled and any
age, if the disability began before the child's 22nd birthday
As you might expect, it’s relatively uncommon for people who are 62 or older to have children in one of these categories. However, there are 690,000 children of retired workers collecting a Social Security benefit, and the average monthly benefit amount for a qualifying child is $697.31.
There’s a family maximum that can be paid out on any worker’s record
We’ve mentioned spousal benefits and survivors benefits, as well as benefits for children in some cases. With all of that in mind, it’s also important to know that there’s a maximum amount of benefits that can be paid out based on any one person’s work record. The formula to determine this “family maximum” is quite complex, but it translates to between 150%-180% of the worker’s full retirement benefit.
If the total calculated benefit payable on your work record exceeds your family maximum, the benefits payable (to other people, not your own) will be reduced proportionally.
The file-and-suspend strategy is long gone (for most people)
If you’ve done a web search for “Social Security strategies” or anything similar, you may have seen search results related to a strategy known as “file-and-suspend.”
In a nutshell, this strategy involves the higher-earning spouse claiming their benefit, immediately suspending it, and the other spouse claiming a spousal benefit while the higher-earner's future benefit continues to grow.
Let’s clear the air. This strategy no longer exists. Congress did away with file-and-suspend for retirees in 2016, so this isn’t available anymore.
There are still some effective strategies couples can use
While the lucrative file-and-suspend strategy is a thing of the past, there are some other strategies couples can use to maximize their Social Security benefits.
For example, if both spouses are eligible for retirement benefits on their own work records, it can make good financial sense for the lower-earning spouse to claim their benefit at or before full retirement age, in order to start some cash flow. Meanwhile, the higher-earning spouse waits as long as possible to claim, maximizing their inflation-adjusted income stream and also increasing the survivor's benefit their spouse would be entitled to in the event of their passing.
The more you know now, the better-positioned you’ll be later
While many Americans think of Social Security as a simple program, the reality is that there’s a lot of information to learn, especially for married couples. The more you know about Social Security, the better-equipped you’ll be to make smart financial decisions for you and your family, so it’s certainly worth taking the time to learn about any of the topics in this article that might apply to you.
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