Spousal Planning for Social Security Benefits

Spousal claiming strategies are among the most complex, but fruitful areas to consider for couples who are at, or approaching, Social Security eligibility age.  An article of this size can barely scratch the surface, but in it I will identify and illustrate a few of the major issues and strategies.

I will focus on a couple where the spouses are of similar age and where each has a Full Retirement Age[1] (FRA) of 66.  In one example, the spouse with the lower earnings history has a Primary Insurance Amount[2] (PIA) that is less than half as large as the PIA of the higher earning spouse.  In the second example, the spouse with lower earnings has a Primary Insurance Amount (PIA) that is more than half as large as the PIA of the higher earning spouse

Some general rules: 

1.  A spousal benefit claimed at the claimant’s FRA or later is 50% of the other spouse’s PIA

2.  Benefits claimed on one’s own record later than FRA are increased

3.  Benefits are reduced whenever a person claims them before FRA

4.  When a person claims spousal benefits before FRA, she is deemed to have filed for her own benefits as well

5.  When a person claims their own benefit and a spousal benefit before FRA, the benefit they receive is actually a combination of a reduced benefit on their own record and a reduced spousal add-on. 

6.  If a person files for their own benefit before FRA and a spousal benefit after FRA, the spousal add-on is not reduced

7.  A spouse who files for benefits before FRA can receive spousal benefits only if her[3] own PIA is less than 50% of her spouse’s PIA

8.  Either spouse may claim spousal benefits on the other’s record, but

• Not until the other has filed for their own benefit, and
• Not at the same time

9.  A person who claims benefits before reaching FRA and who earns more than the Social Security earnings limit ($15,120 in 2013) will have $1 withheld from benefits for every $2 earned over the earnings limit. 

Example 1: 

Dr. Walters turned 62 six months ago; he is still actively in practice where he earns a six-figure income.  His PIA is $2,500.  Mrs. Walters will be turning 62 shortly; she earns $12,000 per year working part time; her PIA is $800.  Here are some of the factors and limitations they can consider: 

• Dr. Walters cannot receive any benefits as long as he is under age 66 and earning a substantial income.  (Rule #9.)
• If Mrs. Walters files at age 62, her monthly benefits will be reduced by 25% of her PIA; she will receive $600 per month on her own record.  She cannot receive any spousal benefits until Dr. Walters files.[4]  Assuming she files for spousal benefits at her age 66, she will receive a spousal add-on of $450 per month, for a total benefit of $1,050.  Her spousal benefit would have been $1,250 had she waited until age 66 to claim benefits, but the $200 reduction she incurred for filing at age 62 carries over when she files for spousal benefits.
• If she waits until age 66 to file, she will receive $1,250 for the rest of her life, or until Dr. Walters dies, at which time she will switch to higher survivor benefits. 

Example 2: 

Assume the same facts as Example 1, except that Mrs. Walters’s PIA is $1,600. 

• If Mrs. Walters files for her own benefits at 62, the reduction will be $400, and she will receive a monthly payment of $1,200 [$1,600 – (.25*$1,600)].  Now, however, she will be unable to claim spousal benefits at any time, because of rule #7.
• If Mrs. Walters files at 62, Dr. Walters can file a restricted application[5] for spousal benefits when he reaches age 66.  That will enable him to receive $800 per month until he reaches age 70, at which time he will switch to his own benefit.  Because he waited until 70 to file for his own benefit, his payments will now be $3,300 per month.
• If Mrs. Walters waits until 66 to file for benefits, Dr. Walters can file and suspend at that time and she can receive spousal benefits of $1,250 per year for four years.  At age 70, she can switch to her own benefits, which will have grown to $2,112.  She will receive that amount for the rest of her life, or until Dr. Walters dies, at which time she will switch to a survivor benefit of $3,300 per month. 

The above examples illustrate some of the complexities that arise even in a simple situation.  To learn what options might be open to you, contact The Social Security Maven® for a comprehensive analysis of your own situation.