In the last edition of RETIREMENT GAME PLAN, we took a long look at the math behind claiming your social security benefits by walking through a case study of a 62-year-old couple, Bill and Madeline.
In this edition, let’s dig deeper into the rules surrounding spousal benefits.
To begin with, Madeline worked over her lifetime so she’s qualified to receive social security benefits on her own. However, when her children were younger, she stopped working for periods of time, so her benefits are significantly lower than Bill’s.
How to Evaluate Spousal Social Security Benefits
There are two ways of calculating Madeline’s benefits.
Even if she never worked over the course of her lifetime, Madeline is still entitled to one-half of Bill’s benefit at the very least (depending on when she decides to begin collecting as we’ll discuss shortly).
Since she’s also eligible for benefits due to her own employment history, Madeline has a decision to make as to which set of benefits to collect.
For example, let’s assume for a moment that Bill waits to collect his full social security benefits (FRA) of $3,000 per month at his age 66.4.
Given this, Madeline’s spousal benefit is $1,500 per month at age 66.4 as Bill’s wife.
If Madeline’s social security benefits from her employment are greater than $1,500 per month, she would begin benefits under her own employment records. However, if they’re less than $1,500 per month, she will collect spousal benefits.
Other Issues and Strategies to Think Through Before You Choose
- Let’s assume that Bill continues to work until his Full Retirement Age (FRA – age 66.4), but Madeline chooses not to. Bill would then wait until at least age 66.4 to begin collecting his social security benefits, thus Madeline could not begin collecting “spousal” benefits.
However, Madeline could begin receiving benefits under her own account due to her earnings history. Assuming for a moment that those benefits are lower than her spousal benefits as Bill’s wife, Madeline’s benefits would then bump up to the higher spousal benefit amount once Bill begins collecting his benefits.
- If Madeline has reached her full retirement age (FRA), she may begin collecting spousal social security benefits even if she continues to work past her FRA and accrue benefits under her own account. When she later stops working, if her benefits are greater, she may then choose to switch her social security benefits from “spousal” to benefits from her own employment account. This scenario assumes that Bill already began collecting social security benefits because spousal benefitsmay only begin when the second spouse has initiated benefits.
- If Bill began receiving his benefits at age 62, his actual benefit would have been $2,200 per month (75% of his full retirement age benefit at age 66.4). Even though Bill began receiving his benefits at age 62, Madeline may decide to wait to begin receiving her spousal benefits at her age 66.4.
*** If she chooses to do so, she doesn’t receive 50% of Bill’s reduced benefit of $2,200 per month (for beginning his benefits at age 62). Madeline would receive 50% of Bill’s full retirement benefit ($3,000) as if he began receiving benefits at age 66.4, or $1,500 per month.
- If Madeline decided to begin receiving her reduced spousal benefit of $1,050 per month at age 62 (35% of $3,000 per month instead of 50%), she may not later draw an increased spousal benefit amount at age 66.4.
- Assuming for a moment that Madeline was younger than Bill, she may not begin collecting any social security benefits before she reaches age 62. (The exception is if Bill passes away. In that case, assuming she has no dependent children, Madeline could begin collecting at age 60.)
As you can see, there is a lot of room for confusion and these decisions are not as clear-cut as you may like them to be.
The key is knowing the rules and fully weighing all options before you begin collecting your benefits so that you can receive the largest amount you are entitled to receive.