How to Time Social Security Benefits to Help Your Spouse

One of the least understood and most confusing aspects of Social Security benefits are the spousal benefits. Much attention is devoted to the best time for an individual to begin receiving retirement benefits, but how that choice can affect the benefits of a spouse receives much less attention.

In this visit we primarily are going to discuss spousal retirement benefits, but lets first briefly discuss the rules for survivor benefits.

A survivor receives the higher of his or her own earned benefit and the survivor benefit. A surviving spouse who already has reached full retirement age is entitled to a survivor benefit equal to what the deceased spouse was receiving. A surviving spouse who applies for survivor benefits before full retirement age will have the benefit reduced 0.42% for each month survivor is below the full retirement age. The age at which the survivor began collecting his or her own retirement benefits will not affect the amount of survivor benefits.

Strategy: The longer one delays one’s own retirement benefits, the higher the amount a spouse could receive in survivor benefits.

Spouses also are entitled to retirement benefits. A married person can receive retirement benefits based on either his or her own earnings record or on the spouse’s earnings, whichever is higher. The general rule is that a spouse receives the higher of his or her own earned benefits and half of the spouse’s earned retirement benefit. But the spousal retirement benefit is reduced if either spouse begins benefits before full retirement age. We’ll look at some examples shortly. To keep it simple, we’ll assume the wife is the lower-earning spouse.

For a spouse to receive retirement benefits, the other spouse first must be receiving retirement benefits. If the wife is ready to retire and wants to receive benefits before her husband, the wife’s benefits will not be based on the husband’s earned benefits. Theoretically the husband can begin receiving retirement benefits while continuing to work. If the husband is under full retirement age, however, the earnings limit will reduce the amount of those benefits and that in turn will reduce the amount received by the wife. If the salary of the husband is high enough, the benefits either spouse is eligible for will be zero.

The wife, however, can begin receiving benefits based on her own earnings record when the husband is not yet receiving benefits. After the husband begins receiving benefits the wife can receive benefits based on the husband’s earnings record. The benefits received by the wife at both times, however, will be reduced if the wife begins benefits before his or her full retirement age (FRA). Let’s look at some examples.

Rosie Profits wants to begin receiving benefits while her husband Max wants to delay benefits. Rosie is entitled to $500 monthly at full retirement age based on her own earnings. When Max reaches FRA he will be entitled to $1,800 monthly. Rosie can begin taking $500 now. When Max begins benefits at FRA, Rosie will receive an additional $400 to bring her total to $900 monthly-half of Max’s benefits. That assumes neither of them began receiving benefits until reaching FRA.

Suppose Rosie begins receiving her benefits before her FRA. She will receive a reduced benefit of let’s say $400 monthly. When Max retires at FRA, she still will receive the additional $400, bringing her monthly benefit to only $800. By beginning benefits before FRA she permanently reduces her monthly benefit, even after Max retires at FRA.

Now suppose Max begins benefits before Rosie reaches FRA, and Rosie already began receiving $400 monthly before her FRA. Rosie’s spousal benefit will be reduced again, based on a formula. She should receive less than the $800 monthly in the previous example. A calculator on the Social Security web site at www.socialsecurity.gov can compute the actual benefits for individual situations.

As you can see, the rules and scenarios can get complicated. Social Security’s web site calculators can help explore results under different scenarios. Others have studied the issue and concluded the best strategy for most couples. Under these studies lifetime payouts are maximized if the lower-earning spouse begins taking benefits early, say when first eligible at age 62. The higher-earning spouse should wait to at least age 68 before taking benefits and preferably to age 70.

Here’s a peculiar scenario the law apparently allows. Max and Rosie Profits are the same age. Rosie would be entitled to $1,000 monthly at her FRA; Max would receive $2,000 at his FRA. Rosie begins benefits at 62, receiving $750. Max wants to wait until age 70, but decides he needs some cash flow before then. At FRA, Max applies to receive one half Rosie’s benefits. He would receive $500 (half Rosie’s benefits at her FRA). At 70, Max can apply for benefits based on his earnings record, which would pay benefits over $2,000 monthly.

What if a spouse now believes he or she made the wrong choice and began benefits early? A retirement benefits recipient can change his or her mind by filing a Withdrawal of Claim with SSA. Along with the form, the benefits received to date have to be repaid. In the year prior benefits are repaid, the recipient will receive a Form 1099 from SSA with a negative number, and that amount might be either deductible on the tax return or taken as a credit for income taxes paid on the previous benefits. For details check IRS Publication 915 and the Social Security benefits handbook. Both are available on the agencies’ web sites.

The bottom line is that it usually pays for at least one spouse to wait before receiving benefits. Married couples should consider their benefits jointly to maximize the family income, the benefits paid to each, and future survivor benefits.