Social Security’s Biggest Misconception: Spousal Benefits Before Full Retirement Age
“Social Security’s Biggest Misconception: Spousal Benefits Before Full Retirement Age” by Tom Hager, CPA, CGMA, NSSA | Principal – Tax
Spousal benefits are benefits unto themselves that can create significant confusion and lead to a lot of questions. The biggest misconception I often hear about Social Security benefits is that a spouse is entitled to 50 percent of their spouse’s benefit. This is true only if the spouse who is claiming spousal benefits does so after reaching their full retirement age.
Spousal benefits are calculated when receiving spouse claims. Benefits claimed early, before full retirement age, are always smaller. The maximum spousal benefit possible is equal to 50 percent of your spouse’s full retirement age benefit – never higher. I frequently read articles that get this wrong. In short, you always should file for spousal benefits no later than your full retirement age, as the benefit never gets greater.
To qualify for spousal benefits:
- Both you and your spouse must be at least 62 years old
- You must be married at least one year continuously
- The other spouse must be receiving benefits
Anytime you claim Social Security benefits before full retirement age, Social Security applies the “deeming” rule and treats it as filing for any and all benefits available to you at that time. In short, if you are entitled to spousal benefits, you will receive them whether you want them or not.
Related to this, the second biggest misconception I come across involves worker benefits. Spousal benefits are layered on top of your worker benefit. When you file for benefits before full retirement age, you always are paid your worker benefit first, and then, if applicable, an additional amount for spousal benefits. Please let that one sink in. If you claim spousal benefits before full retirement age, you will not be able to claim your worker benefit in the future. Both your worker benefit and spousal benefit will be smaller if taken before full retirement age.
Below is a chart showing your total spousal benefit at different ages, if your spouse’s primary insurance amount is $2,500 and your primary insurance amount is $1,000. The chart assumes your full retirement age is 66 years old.
|Spouses full retirement age benefit – PIA||$2,500|
|One half of benefit||50%|
|Maximum total benefit||$1,250|
|Your full retirement age benefit – PIA||$1,000||75%||80%||86.66%||93.33%||100%|
|True spousal benefit||$250||70%||75%||83.33%||91.67%||100%|
|Worker benefit reduction||$750||$800||$867||$933||$1,000|
|Spousal benefit deduction||$175||$188||$208||$229||$250|
|Total benefit at each age||$925||$988||$1,075||$1,162||$1,250|
You can see from the chart above that you will receive 50 percent of your spouse’s benefit if you file at full retirement age. This is the only age at which you will receive the full 50 percent.
In addition to the information provided above, you should consider the following when deciding to claim spousal benefits:
- You must apply for spousal benefits – they do not begin automatically
- Both spouses cannot receive spousal benefits at the same time
- The Annual Earnings Test applies until full retirement age
- The Government Pension Offset may apply
- The Family Maximum may apply
Let’s throw one more wrinkle into the equation before we close. If you wait to claim benefits at full retirement age, the “deeming” rules do not apply. You could file a “restricted application” for spousal benefits only, which would allow your worker benefit to accrue delayed retirement credits.
I hope this clears up some of the confusion on spousal benefits and how they are calculated. Claiming spousal benefits needs to be a coordinated strategy with your spouse. Properly claiming spousal benefits can increase your overall lifetime benefits up to 25 percent.
For more information about Social Security benefits, or to set up a Social Security Optimization appointment, contact me at 330.867.7350.