On paper, Social Security’s spousal benefits might seem simple enough to understand.
But that’s not the case according to Elaine Floyd, the director of retirement and life planning at Horsesmouth, a New York-based company that helps financial advisers advise clients and manage their practices.
“What we seem to be dealing with the most these days are people who want spousal benefits and don’t understand the conditions under which they can receive them,” she says.
So, what are those conditions and other aspects of Social Security’s spousal benefits you need to know?
The higher earner must file first
You can’t claim a spousal benefit until your spouse – the higher earner – has claimed their own benefit, says Floyd.
That wasn’t always the case, according to Heather Schreiber, a principal with HLS Retirement Consulting. Before the Bipartisan Budget Act of 2015 became the law of the land, a dependent or the lower earning spouse could claim a spousal benefit before the higher wage earner filed and take advantage of something called the file-and-suspend strategy.
That loophole permitted the higher wage earner, in most cases, to file and immediately suspend benefits to allow a dependent or lower-earning spouse to file under the suspended record. As of April 30, 2016, that strategy is no longer permitted.
Also worth noting: You’re not eligible for a benefit based on the worker’s earnings unless you’re at least age 62 or have a qualifying child in your care.
No spousal benefit?
If you’re eligible to claim your spousal benefit, there’s a chance you might not get it if your benefit based on your earnings is greater than the spousal benefit.
“You can’t receive a spousal benefit unless your own benefit is less than 50% of your spouse’s benefit,” Floyd notes.
There is an exception for those born before Jan. 2, 1954. Those individuals can claim a spousal benefit and then claim their benefit on their earnings record as late as age 70, says Schreiber.
How much will you get?
Well, that depends. The spousal benefit can be as much as half of the higher earner’s “primary insurance amount” or PIA depending on when the spouse files for his or her spousal benefit.
But if a spouse files for a spousal benefit before full retirement age or FRA, he or she – unless caring for a qualifying child – will receive a reduced benefit. Social Security has a calculator on its website where you can compute the effect of early retirement for spouses who do not have a qualifying child in their care.
Nothing lasts forever
Spousal benefits are only paid until the death of the first member of the couple, explains Joe Elsasser, a certified financial planner and founder of Covisum, a financial planning software company. “As a result, spousal benefits should generally be claimed as soon as they are available.”
Indeed, for couples looking to maximize their household’s Social Security benefits, the lower-earning spouse could claim and receive a reduced Social Security on their own earnings record as early at age 62 and then file for spousal benefits when the higher-earning spouse claims Social Security. This could result in a larger lifetime benefit for the couple.
Consider combined longevity
But claiming strategies for couples should also consider the combined longevity of the couple, particularly when a wide disparity in benefit amounts exist, notes Schreiber.
“When one spouse dies, the survivor will collect the higher of the two monthly benefits,” she says. “This makes it especially important to focus on the claim timing of the higher earning spouse.”
Elsasser shares that opinion. It may be tempting for the higher wage earner to claim benefits prior to age 70 in order to make a spousal benefit available to a lower wage earner.
“Be very cautious about doing so,” he warns. “The spousal benefit is only payable until the first death, but the benefit increase to the higher-wage earner’s benefit is paid for as long as either member of the couple is alive.”
In most cases, the benefit increase payable during the high wage earner’s lifetime and through the survivor’s lifetime by virtue of delay is more valuable than the ability to claim a spousal benefit earlier, says Elsasser.
The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.
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