Situational Social Security: Spousal Benefits

We emphasize SITUATIONAL SOCIAL SECURITY in the NSSA® Certificate program, as all your clients are UNIQUE. Your clients may be single, married with wide age differences, married with narrow age differences, divorced, surviving spouses, eligible to file a Restricted Application, children, public employees, etc. Advisors, (YOU), must understand the issues and questions that relate to every unique client. You are your clients’ trusted advisor and must understand Social Security.

My partner, Jim Blair, worked for the Social Security Administration for 35 years and retired in January, 2010. Jim and I began our journey together at that time to help folks to understand and maximize their Social Security benefits. In January 2013, we created the National Social Security Advisor Certificate program. To date, 2,500 advisors across the country have earned the NSSA® certificate.

In this installment of Situational Social Security, (SSS), we are going to discuss spousal benefits.  In our class we spend significant time discussing spousal benefits as this is a key factor in deciding when spouses should begin benefits.  First, the rules for YOU to collect off YOUR spouse:

1. You must be at least age 62
2. Your spouse MUST be COLLECTING a RETIREMENT or DISABILITY benefit.
3. Marriage duration – 12 continuous months
4. Spousal benefit is equal to 50% of other spouse’s PIA (FRA benefit)

You can see that your spouse must be receiving a Social Security RETIREMENT or DISABILITY benefit.  Thus, a husband must be receiving a benefit so his wife can receive a spousal benefit.  The opposite is also true.  A wife must also be receiving a RETIREMENT or DISABILITY benefit so her husband can receive a spousal benefit.  Does a husband (or wife), turn on benefits at FRA so a spousal benefit can be paid?  Or does the husband/wife wait to age 70, thereby, maximizing DRCs, but delaying the payment of a spousal benefit?  You as the advisor will help your client make this decision.

How much is a spousal benefit?  Easy – 50% of spouse’s PIA.  PIA or Primary Insurance Amount is the amount of benefit that an individual receives at Full Retirement Age.  Assume that my PIA is $2,000 and that my FRA is June 2022.  I will receive $2,000 if I begin in June, 2022.  My benefit will be reduced if I begin prior to June, 2022 and will be increased if I begin after that month.  Half of PIA actually means half of PIA!  If I begin my benefits at age 62, my wife will still receive half of my PIA or $1,000 at her FRA.  If I begin my benefits after reaching FRA, my wife will still receive half of my PIA.

For example, assuming my FRA is age 66 and I begin at age 62, I will receive $1,500.  If I begin at age 70, I will receive $2,640.  In either situation, my wife will receive half of my PIA or $1,000 at her FRA.  If she begins the spousal benefit at age 62, the spousal benefit is reduced by 30% to $700. So, it does not matter if I begin benefits prior to FRA or after FRA, my wife still ONLY receives 50% of my Primary Benefit Amount (PIA).

Spousal benefits do not increase beyond Full Retirement Age, so there is no reason to begin a spousal benefit after FRA, unless not eligible.  Of course, to be eligible for a spousal benefit, the other spouse must be receiving a retirement or disability benefit.

Restricted Application – Tom and Barbara came in last week and met with Jim Blair. Tom and Barbara have been married for 25 years. Tom was born January 25, 1952. Tom asked if the strategy to collect a spousal benefit is still available.  Jim indicated that Tom is referring to the Restricted Application and that this strategy is available to folks born by the MAGIC birthday of January 1, 1954.  Jim indicated that when Barbara turns on her benefits, Tom can file a Restricted Application to collect a spousal benefit while at the same time his own retirement benefits are accruing the Delayed Retirement Credits.  The Restricted Application is a very valuable strategy – like having your cake and eating it too.  Tom is receiving a spousal benefit while accruing DRCs on his own work record.  Unfortunately, this strategy will be completely phased out by December 31, 2023. Advisors must be aware of client’s birthdates and take advantage of the Restricted Application when appropriate.

Surviving Spouse Benefit – Frequently, the main factor when to begin SS benefits is the impact on a surviving spouse benefit. Generally, the husband will pass away before the wife and is the higher income earner.  If he begins prior to his FRA, the reduction may last two lifetimes.  If he begins after FRA up to age 70, the increase may also last two lifetimes.  Should the husband begin at Full Retirement Age or should he begin at age 70? Be sure to factor in the importance of a surviving spouse benefit when deciding when to begin benefits.

Common Strategy – If the wife is also eligible for Social Security benefits, a strategy gaining in popularity is for the wife to file for her benefits at age 62.  Beginning benefits at age 62, might allow her husband to wait to FRA or even to age 70.  AND, if he was born by the MAGIC birthdate of January 1, 1954, he can file a Restricted Application to receive a spousal benefit while his benefits increase for the Delayed Retirement Credits.

The content on this blog is for informational purposes only and is not legal, financial, or professional advice. Social Security rules change periodically, so some information may become outdated. For the most accurate advice, consult a certified National Social Security Advisor (NSSA®). Social Security Professionals, LLC, and NSSA® are not responsible for any errors, omissions, or actions taken based on this blog's content. Use of this blog does not create a client relationship, and all information is provided "as is" without guarantees. By using this blog, you agree to hold Social Security Professionals, LLC, and NSSA® harmless from any claims or liabilities arising from its content. For personalized guidance, contact an NSSA® professional.