Social Security Spousal Benefits – 3 Things to Know
One of the fundamental income sources for retirees is social security. The amount of social security for which a worker qualifies is based on average indexed monthly earnings over their 35 highest earning years. Spouses, too, may be entitled to a spousal benefit equal to as much as half of their partner’s social security benefit but they must be 62 years old or having a qualifying child in his/her care to claim the spousal benefit. Conversely, if a spouse’s retirement benefit is higher than their spousal benefit, they will receive the higher retirement benefit.
There are many factors that determine the size of one’s retirement benefit and subsequently, the size of the spousal benefit. The most important factors for calculating retirement benefit include annual earnings and the age of worker when retirement benefits are claimed. For spousal benefits, the maximum benefits occur when their spouse’s retirement benefits are taken at or after full retirement age (FRA). Claiming spousal benefits when the working spouse claims retirement benefits prior to FRA will reduce the amount of spousal benefits received (to less than half of the retirement benefit).
One should discuss when to file for their social security benefit and spousal benefits with the guidance of their financial advisor at Heck Capital, as that decision will focus on one’s unique financial picture and objectives. However, there are some common misconceptions and additional strategies around spousal benefits clarified below.
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File and Suspend
Prior to the Bipartisan Budget Act of 2015, the “File and Suspend” strategy allowed retirees to file for social security benefits at FRA and then immediately suspend the benefit with the intention of receiving the income in future years. For each year the retirement benefit was delayed (until 70 years old), the benefit increased 8% per annum. This allowed spouses to claim the maximum spousal benefit even though the retirement benefit wasn’t actually being collected when initially claimed. The Bipartisan Budget Act of 2015 closed this loophole and it is no longer a strategy available for new filers.
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Restricted Application
For filers born before 1954, a restricted application for benefits is another popular strategy if income isn’t needed immediately upon turning FRA. In this strategy, the lower earning spouse can file for their retirement benefits at FRA and the higher earning spouse can file a restricted application to receive spousal benefits from their spouses’ social security, all while delaying their own retirement benefit until 70 (and not reducing any of the 8% growth per annum benefit for doing so). The higher earning spouse will receive half of their spouses’ social security payment until their own retirement benefit is claimed, and then at age 70 (or whenever retirement benefits are claimed after FRA), the lower earning spouse can file for spousal benefits and receive up to half of the higher earners’ FRA benefit.
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Maximum Spousal Benefit
A question frequently asked related to social security spousal benefits is “does my spousal benefit increase if my higher earning spouse delays filing (past FRA)?”. In short, the answer is “no”. The maximum spousal benefit that can be received is half of the retirement benefit at the higher earning spouse’s FRA regardless of when he/she files for retirement benefits after FRA.
For more information on how social security is calculated or how to apply for social security benefits, please visit https://www.ssa.gov/pubs/EN-05-10070.pdf. For an estimate of your retirement benefits, please visit the social security calculator at https://www.ssa.gov/benefits/retirement/estimator.html.
Authored by Michael Bogard, CFA on May 2, 2019
About the Author: Michael Bogard, CFA is a Business Development / Client Relationships Senior Associate at Heck Capital Advisors. Michael earned the right to use the Chartered Financial Analyst® (CFA®) designation after completing the program, fulfilling the work experience requirements, and gaining acceptance as a member of the CFA Institute. The Chartered Financial Analyst® (CFA®) charter gives a strong understanding of advanced investment analysis and real-world portfolio management skills. CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.
Heck Capital is an independent, Registered Investment Advisory Firm providing comprehensive investment management, personalized advice, and strategic financial guidance since the 1950s. We serve goal-driven individuals, families, established institutions, non-profit organizations, and foundations/endowments; striving to help our clients achieve their investment objectives, helping to simplify their financial lives, with the goal to create lasting legacies.