Spousal Benefits: What's Important to Know

Here's a short list of rules every potential spousal-benefit applicant should know.

• Even if a marriage partner has earned little or no income in their prime years (e.g., full-time parents/homemakers), they can still claim spousal benefits.

• A spouse can only claim spousal benefits when (or after) the higher-earning spouse claims their own benefits.

• Spousal benefits can be claimed as early as age 62, but the benefit is reduced for early filing and reaches its maximum at your FRA. Claiming spousal benefits at 62 reduces the spousal benefit to only 32.5% of the higher-earning spouse’s full benefit amount (instead of 50% at FRA).

• If you claim your regular Social Security benefit before your higher-earning spouse does, you may be eligible for what’s called an automatic “top off” to a spousal benefit at a later date when (or after) your spouse decides to file.^* If you claim your own retirement benefit before FRA and later become eligible for a spousal top-off, your total benefit may be reduced because of the early claim.

• You can’t collect a spousal benefit if your own regular retirement benefit is higher. If your potential spousal benefit is higher than your own retirement benefit, Social Security may pay your own benefit plus the spousal top off that brings your total up to the higher available amount.

• Either spouse can maximize their regular Social Security benefit amount by waiting past their FRA to apply, up to age 70. Benefits generally increase 8% each year filing is delayed.

• Spousal benefits don’t increase beyond the maximum 50% of the higher-earning spouse’s FRA benefits, so there’s no financial advantage for the lower-earning spouse to delay a spousal-benefit application past one’s own FRA.

To learn more details about spousal benefits and to see exactly what you’re entitled to collect at FRA, you should set up a mySocialSecurity account at SSA.gov. With all that in mind, let’s turn our attention to three hypothetical decision scenarios that a trio of married couples might face as they work together to maximize their joint Social Security benefits:

Scenario 1: Joe and Ruth (Claiming Early vs. Claiming Late)

Assumptions:

• Joe, an engineering manager, has reached his FRA—66 and 10 months
• Ruth, a schoolteacher most of her life, turns 65 this year and still works part-time as a substitute teacher
• Joe and Ruth have a modest savings nest egg and are in good health

Option A: Claiming Early
Joe wants to claim his retirement benefits sooner rather than later, so, upon reaching his FRA, he chooses to apply for his $2,500-per-month entitlement. 

To bolster her modest $20,000 annual income as a substitute teacher, Ruth applies separately for her regular Social Security benefits—about $943 per month—even though, at age 65, she’s still two years away from her FRA.

Outcome: Joe and Ruth begin with a combined monthly benefit of $3,443, subject to future cost-of-living adjustments. Could they have improved on this strategy? Possibly, yes.

Option B: Claiming at Full-Retirement Age and Applying for a Spousal Benefit
Joe and Ruth each decide to maximize their benefits by waiting a few years.

For Ruth, waiting two more years to age 67—her FRA—enables her monthly benefit to climb from $943 to $1,100, based on her lifetime earnings history. Joe is now 69 and has one more year to reach 70 and claim his maximum benefit.

For Joe, waiting until his 70th birthday allows him to file for a maximum monthly benefit of about $3,150 (instead of the $2,500 he collects under Option A).^*

Finally, now that Joe and Ruth are both collecting their regular benefit, Ruth can look forward to receiving a $150 automatic “top-off” adjustment to include a spousal benefit. Although Joe now collects $3,150 per month, Ruth’s spousal benefit would amount to 50% of her spouse’s FRA amount: $1,250 ($2,500 ÷ 2). That’s still $150 a month more than she would collect based on her own regular $1,100-per-month benefit. Fortunately for Ruth, she began collecting her original Social Security benefits at her FRA, so her top off won’t be subject to any early-filing penalties. Spousal benefits are capped at 50% of the higher-earning spouse’s FRA, even if that spouse can collect a higher amount by waiting until age 70 to file.

Outcome: If Joe and Ruth choose Option B, they’ll collect a lifetime benefit of $4,400 a month vs. $3,443 under Option A. That’s an extra $11,484 per year to help them stretch the money they’ve already saved. What’s more, by waiting until age 70 to claim his benefit, Joe provides a larger survivor benefit for Ruth if he dies first. 

^* Joe’s hypothetical age-70 amount reflects estimated cost-of-living  adjustments in the interim years.

Scenario 2: Mike and Ann (Spouse With Little Earned Income)

Assumptions:

• Mike, a sales manager, turns 65 this year—two years before his FRA—and wants to retire early to enjoy his grandchildren
• Ann, a homemaker who raised four children, turns 62 this year, has some health issues, and worries about having limited benefits
• Mike and Ann only have a modest $60,000 nest egg

Option A: Early But Partial Spousal Benefits
Mike decides to keep working two more years until he reaches 67, his FRA, which enables him to claim 100% of his benefit entitlement: $2,800 a month.

Despite Ann’s health issues, she decides to wait two years (until age 64) when Mike begins to collect his own benefit. By waiting a bit, she can claim spousal benefits based on Mike’s earnings history. But since her own FRA is still three years away, she can collect only 37.5% of Mike’s benefit every month—or approximately $1,050.

Outcome: Claiming benefits at age 67 and 64, respectively, Mike and Ann will earn a joint monthly benefit of $3,850. 

Nevertheless, Ann considers herself fortunate to receive even a reduced spousal benefit since (a) her sparse work history would have left her with almost no Social Security benefits of her own, and (b) she needs the money up front to take care of health concerns.

Option B: Taking a Chance on Waiting and Maximizing
Faced with health issues, Mike and Ann made a reasonable and necessary strategic decision with Option A, one that resulted in relatively smaller benefits. But what if their health and family circumstances changed, enabling each of them to wait a few more years? Waiting could open the door to a better maximum-benefit strategy.

Outcome: Mike holds out another five years until age 70 to collect his benefits. Instead of $2,800 a month, he now receives approximately $3,527 a month.* Ann waits five years until age 67,  her FRA, to collect her maximum 50% spousal benefit—$1,400 a month (half of her spouse’s FRA benefit of $2,800) instead of the $1,050 reduced spousal benefit under Option A. That’s a combined lifetime monthly income of $4,927 instead of the $3,850 they would receive under Option A.

^* Mike’s hypothetical age-70 amount reflects estimated cost-of-living  adjustments in the interim years.

Scenario 3: Norm and Karen (FRA and a Spousal Benefit Top Off)

Assumptions:

• Norm, a customer-service rep most of his working years, turns 66 and 10 months
• Karen, a writer and editor who’s been the higher earner of the two, turns 65

Strategy: Maximizing Benefits with a Boost from the Automatic “Top Off”
Having hit his FRA, Norm is entitled to 100% of his own individual benefit—$1,200 a month.

Karen, who has earned a higher salary than Norm through the years, decides to postpone her claim so she can earn delayed retirement credits. Two years later, when she turns 67 (her FRA), she applies for her own individual benefit amount—$2,800 a month. At this juncture, their combined benefit adds up to $4,000 a month.

But now that Karen has claimed her individual benefit, Norm (now nearing 69) is entitled to an automatic $200-per-month spousal top off that raises his previous $1,200 monthly benefit to $1,400 a month—50% of Karen’s full-retirement-age benefit. Once Karen begins receiving benefits and SSA determines Norm is eligible for a higher spousal amount, his benefit is adjusted to include the applicable spousal supplement.

Outcome: Karen and Norm are now jointly earning $4,200 a month.

For illustrative and educational purposes only. The hypothetical situations described above are dramatized scenarios for pre-retirees and Social Security beneficiaries to consider, if they choose, during their own decision-making process and should not be construed as advice. The circumstances and strategies described herein may not reflect an actual client’s experience. The couples described in the above scenarios are fictitious and any resemblance between them and actual couples is coincidental.

All information provided is for informational and educational purposes only and is not intended to provide investment, tax, accounting, or legal advice. As with all matters of an investment, tax, or legal nature, you and your clients should consult with a qualified tax or legal professional regarding your or your client’s specific legal or tax situation, as applicable.

The preceding is not intended to be a recommendation or advice. This information does not take into account the specific investment objectives, tax and financial condition of any specific person. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. This material and /or its contents are current at the time of writing and are subject to change without notice.