Understanding Social Security: The messy math of Social Security, spousal benefits and when to claim
Life can be complicated — Social Security tries to make up for that.
The amount that a person is entitled to when it comes to claiming Social Security goes beyond just what they’ve earned over a lifetime of paid employment.
This is especially true when it comes to married couples because quite often there is a significant difference in the lifetime earnings records for two married people.
This may occur because one or the other spouse takes time off (or works part time) while the children are young and in school. Or there could be a health situation limiting one spouse’s working years. In the case of self-employment, the income might be stacked on one member of the couple more than the other.
Whatever the reason, when a couple is approaching retirement age and reviews their projected Social Security benefits, one member of the couple often has a much larger benefit than the other. When this occurs, Social Security’s rules have a way to make up for the foregone benefits of the lower earning spouse, by adjusting the available benefits based upon the higher earning spouse’s earnings. The maximum adjustment can bring the total benefits of the lower earning spouse up to 50% of the benefit of the higher earning spouse.
Jeff and Laura, both approaching age 62, are reviewing their projected benefits. Jeff has worked as an accountant for his entire career, and as such his benefit at Full Retirement Age (or FRA, which is 67 for Jeff) is projected as $2,750 per month. Laura has worked as an administrative assistant at a private school sporadically during her adult life, taking several years off while raising their three sons. Her projected benefit at FRA (also 67) is $900 per month. With the spousal benefit adjustment, Laura’s total Social Security retirement benefit could be as much as $1,375, 50% of Jeff’s FRA benefit. So her eventual benefit is a combination of her own benefit plus the spousal benefit adjustment.
Often when explaining the spousal benefit provision, this calculation is omitted and the total benefits to the lower earning spouse are referred to as 50% of the higher earning spouse. It doesn’t always work out this way, as there may be timing differences between the filing dates.
If Jeff and Laura both wait until age 67 to apply for their Social Security benefits, Jeff will receive the $2,750 projected for him, and Laura will receive her own $900 benefit, adjusted upward with the spousal benefit, to a total of $1,375.
It’s important to understand that Social Security looks at the total benefit for Laura as a combination of her own benefit (based on her own earnings record) plus an upward adjustment based on Jeff’s earnings record. This is important if, in our example, Laura decides to start her own benefit at age 62, instead of delaying to age 67. Jeff is planning to delay starting his Social Security benefit until age 67, so that there is not a reduction in his benefits.
In this case, Laura would be eligible for her own benefit which will be reduced because she is starting the benefit early. The reduction is 30%, so her reduced benefit at age 62 would be $630 per month (instead of $900). Since Jeff has not yet applied for benefits, Laura is not yet eligible for the spousal increase. Once Jeff does file, Laura will be automatically eligible for and entitled to the increase.
The spousal benefit only becomes available to Laura once Jeff has filed for his Social Security benefits. So the timing of Jeff’s filing determines when Laura becomes eligible for the spousal benefit increase. If Jeff waits until FRA to file, Laura doesn’t become eligible for the spousal benefit until that time. If Jeff delays past his FRA to file in order to increase his benefit further, he must weigh that increase against the foregone benefits to Laura since she will not receive the spousal increase until Jeff files.
So let’s assume that Jeff starts his Social Security benefit at age 67. When he applies for his benefit, Laura’s spousal benefit is enabled, which will result in an increase to her total Social Security benefit. The increase is calculated by taking the maximum possible spousal benefit (50% of Jeff’s, or $1,375) and subtracting Laura’s unreduced benefit ($900), for a result of $475. This adjustment amount (unreduced, because Laura is at FRA) is added to Laura’s reduced Social Security benefit ($630), for a new total monthly benefit of $1,105 for Laura.
This situation can be further complicated if Jeff was to start his benefits early. If both Jeff and Laura start benefits at 62, Laura is eligible for her own benefit and the spousal adjustment at the same time, both benefits being reduced due to early filing. In this situation, Laura’s total benefit (her own plus the spousal increase) is reduced to the minimum, for a total benefit of $963. Jeff’s own benefit is also reduced to the minimum, a total of $1,925 per month.
On the other hand, if Jeff delays his benefit past FRA, Laura will only become entitled to the spousal benefit increase once Jeff has filed. At age 70, when his benefit is maximized, Jeff would be entitled to a Social Security monthly benefit in the amount of $3,410. Even though Jeff’s benefit increases due to the additional three years of delay, Laura’s spousal benefit adjustment is fixed at the maximum of $475 (50% of Jeff’s FRA benefit minus Laura’s FRA benefit, or $1,375 – $900 = $475). There will be annual COLA increases when applicable, but the base calculation always maxes out Laura’s spousal benefit increase at $475.
In yet another example, if Jeff was to start Social Security benefits right away at his age 62, but Laura delays benefits until her FRA, as calculated earlier Jeff would receive $1,925 per month, and once she files at her age 67, Laura would receive the full $1,375 in benefits, since she delayed filing for benefits until Full Retirement Age.
Lastly, if the circumstances were different and Laura’s unreduced benefit based on her own earnings were $1,500, then she would not be eligible for a spousal benefit at all. This is because her own unreduced benefit is greater than 50% of Jeff’s unreduced benefit.
To get information for reviewing your potential benefits, go to SocialSecurity.gov and establish your “mySocialSecurity” account there, if you haven’t already done so. Within your mySocialSecurity account you’ll find information about your future benefits, which you and your spouse can review together (your spouse will need to access his or her account as well, for information specific to his or her benefits) to help you determine whether a spousal benefit is in the works for either of you. If you don’t have access to a computer or are having difficulties accessing your mySocialSecurity account, you can call SSA directly (1-800-772-1213) to discuss your situation.