I’ve been getting more questions lately on spousal benefit claims for Social Security. These used to be an afterthought, if that, and in years past, millions of couples failed to claim them at all.
Here are a few recent ones:
“My husband started receiving his Social Security at age 66 in January. I will be 66 in October. We are both working and do not need the income yet from my Social Security. If I defer taking mine until age 70, am I entitled to any spousal benefits from his now? Also, do you recommend taking my own benefits at age 66 or waiting until 70?” — Peggie
“My husband recently lost his job. He will turn 65 next April. He plans to file for Social Security then. I do understand that he would receive 6.7% less each month than if he waits until 66 when he has reached his Full Retirement Age (FRA). My question is, I am 63 and will be 64 in December 2015. When he collects at 65 can I apply for spousal benefits and then apply for my full benefits at 66? His estimated benefit at 66 is $2,674, and at 65 should be $2,500. My benefit at 66 is projected at $1,900. I just don’t want to make the wrong choices.” — Marilyn
“I am 67 (born in 1948). My wife turned 62 in July. She has worked and will qualify for Social Security. We have not claimed any benefits yet. I plan to wait until age 70 to file. I think that it is not a good idea for my wife to receive spousal benefit now but I may be wrong. I cannot find a clear answer anywhere. Could I receive half of my wife’s Social Security now?” — Jacques
Read next: Why It’s Risky to Plan to Work in Retirement
4 Key Rules
I’ve got specific advice for each of them, but first, let’s go through a few guiding principles. There are four basic rules that you need to understand in order to make smart decisions on spousal benefits:
- Spousal benefits can’t be claimed unless the “target” spouse — the one whose earnings will be the basis for the benefit — has already filed to claim his or her Social Security retirement benefit. Please pause to think about this for a second, because it has implications for spousal filing decisions and timing.
- Claiming any benefit before full retirement age (currently between 66 and 67, depending on when you were born) will trigger Social Security’s “deeming” rules. This means that if you file for a benefit before your FRA — whether for your own retirement benefit or a spousal benefit — you will be deemed by Social Security to also be filing for the other benefit if you are eligible to receive it. You will not collect the full amount of both deemed benefits but, rather, an amount roughly equal to the greater of the two benefits. Here’s why this is problematic: Once you have been “deemed,” you can never claim a spousal benefit while deferring your own retirement benefit. This prevents you from earning the maximum level of delayed retirement credits.
- Social Security rules prohibit you from suspending your benefits before you’ve reached FRA. So until that point, you cannot use the increasingly attractive “file and suspend” option to let your spouse file for a spousal benefit (which goes back to rule No. 1).
- If you do claim Social Security benefits — whether spousal or your own — before you reach your FRA, you will get hit with hefty early claiming reductions of up to 25% for retirement benefits and 30% for spousal benefits.
So keeping these rules in mind, here’s my advice for each of the letter writers.
Peggie should take a spousal benefit — equal to half of her husband’s age-66 benefit — when she turns 66. Spousal benefits max out at FRA and do not receive delayed retirement credits, so there is no reason for her to wait longer. Indeed, because her husband is already claiming benefits and both have hit their FRAs, there is no downside for her. She can file what’s called a “restricted” application, just for spousal benefits, now; this allows her own retirement benefit to grow 8% a year until age 70.
Marilyn cannot do what she suggests. Applying for spousal benefits before she hits her FRA will “deem” her to take her own retirement benefit at the same time. She will receive the greater of the two — which in this case will be her own — after each has been hit with early claiming reductions. And she cannot, of course, later claim her full retirement benefit at 66, because she will already have begun claiming it earlier.
Jacques’ wife might want to file for a spousal benefit right away — but it only makes sense to do so if her earnings are so small that her spousal benefit, even reduced by early claiming, would be greater than her own retirement benefit. If that’s the case, he would file and suspend, enabling her to file for a spousal benefit. She would be deemed by an early filing, but it wouldn’t matter, as her spousal benefit would be the larger of the two anyway. If she waited four years to file for her spousal benefit at her FRA, she would avoid early claiming reductions. The best approach here is to calculate both age 62 and age 66 spousal benefit amounts and determine which approach is best over time.
However, if her retirement benefit might someday be larger than her spousal benefit, she should hold off filing for anything until she reaches her FRA. In that case, she can claim a full spousal benefit then, defer her own retirement benefit until age 70, and then switch to it.
To answer his last question, Jacques probably shouldn’t claim a spousal benefit on his wife’s earnings, because she would have to file for her own retirement in order for him to do so. Her filing would be deemed, triggering the adverse events listed above. Jacques and his wife should open online accounts at Social Security and see their respective benefit projections. This will help them make an informed decision.
Philip Moeller, co-author of “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” is now working on a companion book about Medicare.