How Do Spousal Benefits Work – A Simplified Explanation
How much will my wife receive from her Social Security Spousal benefit? When will she be qualified to receive her share from my Social Security? Will she lose her own Social Security retirement benefits?
I am four years older than Charlotte. I make more money than she does. That means I will receive a higher amount of Social Security benefits than she will. For 15 years, she didn’t work at all or didn’t make much income from working part-time as a teller at Bank of America. So, her Social Security benefit will be sparse when compared to mine.Let’s say her PIA is $1,300 a month. If she takes it early, we reduce it by 30%, her benefit will be $910 a month.
On the other hand, my retirement benefit is $3,000 a month, at my Full Retirement Age(FRA). In this case her Spousal Benefit will be half of mine, which is $1,500 a month. So, as you can see, Charlotte’s Spousal Benefit will be greater than her own benefit. But she can’t receive a Spousal Benefit until I apply for my own benefit.
But if I apply for Social Security at my FRA, 67 years old, and she applies for her Spousal Benefit then, she’ll only be 63. Her benefit will be reduced by about 22% in this case. So instead of receiving $1,500 she’ll get $1,170 a month. Her Spousal Benefit will always be greater than her own benefit…unless she waits to draw her own benefit when she is 70. With her Delayed Earnings Credits (DEC) her own benefit at 70 will be $1,612 a month. However, bear in mind she can not take her Spousal Benefit while she allows her own benefit to grow with the DECs. Those days are over, as of 2015.
The question then is when is the best time for both of us to draw our benefits. If I draw at 67 I get $3,000 a month and that will open the window for Charlotte to get her Spousal Benefits. She will be 63 and will get a reduced Spousal Benefit of $1,170.
I could draw at 67 and she could wait to draw her own benefit until she is 70 and receive a monthly benefit of $1,612. In my opinion this is the least favorable option though. I’ll be 74 by the time she is drawing any benefit. So, how long will I be alive to draw mine WHILE she is drawing her own? Hard to say, but again, I don’t recommend this strategy.
I could wait until 70 to get a benefit 24% MORE than my PIA of $3,000 a month which will be $3,720. When I draw she’ll be 66 and can get her Spousal Benefit of around $1,380 a month. Between us we’ll be pulling in over $60,000 a year in Social Security benefits! Not too shabby, other than the fact we have to wait until I’m 70 to draw.
A second benefit for this strategy though is that when I die, Charlotte will relinquish her own benefit and get my benefit instead. This is called a Survivor Benefit, which is one of the best life insurance strategies for a surviving spouse there is.
But, we’d sacrifice 3 years of pulling my $3,000 a month benefit and her $1,170 Spousal Benefit while we wait until I’m 70. Is it worth it to wait? Hard to say, depends on a lot when we get in our 60’s. Health being primary. Second will be what our financial situation is at that time.
Lastly, Charlotte can draw her own reduced benefit at 62 of $910 a month while I defer my benefit until I’m 70. This wil provide me the max income from Social Security AND give Charlotte the max benefit when I die as well. Once I file she then get a small bump up because her Spousal Benefit will still be larger than her own, even though the Spousal Benefit will still be reduced.
This will probably be the strategy for us…again, situation at that time dictates.
Another reason for Charlotte to draw early is in the unlikely scenario where she dies first. Let’s say she dies at 67 and I am 71. She deprived herself of enjoying her own benefits and will just go to mine immediately.
It’s usually my default position for a spouse, especially for most women who are often younger and have lesser income than their husbands, to draw early even at a reduced amount.
The point is if we care about our retirement, the best way to do it so look at the numbers. Figure out how much you and your spouse receive from Social Security payments.
Calculate your Primary Insurance Amount (PIA) based on your Full Retirement Age (FRA). Also, don’t be impulsive. Definitely consider delaying your Social Security claims to increase your monthly payments. After all, you have no idea how long you’ll live.