For individuals nearing retirement, the social security system can seem complex, especially when it comes to understanding the rules regarding spousal benefit eligibility. This article will detail how individuals qualify for spousal benefits, explain when to take spousal benefits versus taking individual benefits, and lastly how to use restricted spousal benefits for those who qualify.
If you have not read What to Look For on Your Social Security Benefit Statement , you may want to start there as it provides an overview of how social security retirement benefits are calculated.
What is a spousal or ex-spousal benefit?
The spousal benefit was originally created to provide retirement income to the spouse who was not employed or the spouse who had substantially less earnings throughout their lifetime. An individual can qualify for spousal or ex-spousal benefits even if they have never paid into the social security system.
How do individuals qualify for spousal or ex-spousal benefits?
An individual qualifies for spousal benefits if they meet all the following requirements:
- They are 62 or older
- They are currently married and have been for a minimum of 12 months
- Their spouse has already filed for their social security retirement benefits
An individual qualifies for ex-spousal benefits if they meet all the following requirements:
- They are 62 or older
- They are not currently married but were previously married for more than 10 years.
- Their ex-spouse is 62 or older (notice that for ex-spousal benefits, it does not matter whether their ex-spouse has filed)
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planning insights from Mike
planning insights from Mike
How is my spousal or ex-spousal benefit calculated?
Your spousal or ex-spousal benefit is calculated as half of your spouse’s full retirement age benefit. The spousal benefit is permanently reduced if you choose to file for benefits prior to your full retirement age.
Let’s look at an example of how spousal benefits work:
Tom and Mary are married. Tom is 66 and Mary is 63. They both qualify for social security retirement benefits based on their own earnings. Tom’s monthly benefit at 66 is $2500 per month and Mary’s monthly benefit at 66 is $1200 per month.
If they both filed for their own benefits at age 66, it appears that they would be collecting $3700 per month based on the illustration. However, because Tom has already filed for his benefits by the time that Mary files at 66, she will be eligible for a spousal benefit of $1250 which is equal to half of Tom’s benefit in lieu of her own $1200 benefit. So here is what that looks like:
What if Tom has not filed yet when Mary files for benefits?
If we made a slight change to the previous scenario and had Tom wait until age 70 to file, then Mary will only receive her full retirement age benefit of $1200 per month until Tom files. Once Tom files, she will receive the additional $50 spousal benefit at that time.
How is Mary’s spousal benefit affected if Tom files for benefits prior to his full retirement age?
Another scenario that could occur is that Tom files early for his benefits. Let’s assume that he files for his benefits at age 62 instead of waiting until full retirement age. In this case, his benefit would be permanently reduced from $2500 per month to $1875 per month. Although it is a little counterintuitive, this will not affect Mary’s spousal benefit if Mary waits to file until she hits full retirement age. Assuming she waits until 66, she will still receive $1250 per month as a spousal benefit even though Tom’s has been reduced due to him filing early.
What if I file for spousal or ex-spousal benefits prior to full retirement age?
When individuals file for social security retirement benefits prior to their full retirement age, social security reduces both their benefit as well as their spousal benefit. In our example, if Mary files at age 63, then Mary’s benefit will be reduced from $1200 to $960 per month. Her spousal benefit will be reduced from $1250 to $1010 per month. Since the spousal benefit is higher, she will receive $1010 per month for the remainder of her life.
Is there a limit to how much I can earn when collecting spousal benefits prior to full retirement age?
Yes, an individual earning more than $17,640 per year may be subject to an additional reduction in benefits. For more information on earnings limits, visit https://www.ssa.gov/planners/retire/whileworking.html
Restricted Spousal Benefits
Restricted spousal benefit applications are only available to individuals who were born on or prior to January 1st, 1954. For all other individuals, this is no longer a valid strategy.
What is a restricted spousal benefit?
Restricted spousal benefits allow an individual to delay receiving benefits based on their own work history while receiving a spousal benefit, and later switch to their own benefit which has grown by 8% a year from full retirement age to age 70.
To see how this works, let’s look at our example of Tom and Mary again:
We will start with Tom filing for his full retirement age benefit of $2500 at age 66.
When Mary turns 66, she will file a restricted spousal application allowing her to collect her spousal benefit of $1250 while allowing her benefit of $1200 to continue growing.
When Mary turns age 70, she will then turn off her spousal benefit of $1250 and file for her delayed benefit which has now grown from $1200 to $1584 per month. It is important to note; Mary can switch from her spousal benefit to her delayed benefit at any time from full retirement age to age 70.
Additional items to keep in mind regarding this strategy:
- Mary needs to have been born on or prior to January 1st, If Tom was the individual using the restricted spousal benefit strategy, then we would use his date of birth as the limiting factor.
- Tom must file prior to or at the same time as Mary for her to use this strategy. Otherwise, she would not be eligible for the spousal benefit.
- Mary must wait until her full retirement age to file a restricted spousal benefit application. If she files early, she will not have the option of filing for a spousal benefit and then switching to her own later.
The rules regarding spousal, ex-spousal, and restricted spousal benefits are complex but are important to understand as you make your filing decisions. If you want to take a deeper dive into Social Security, please join me at a location convenient for you.