Spousal Benefit, Survivor Benefit and Your Own Benefit
Social Security pays retirement benefits based on 1 of these 3 amounts, your own benefit, your spousal benefit or your survivor benefit.
It’s important to understand the difference between the three.
So, let me start with the easiest, the benefit you will receive on:
YOUR OWN BENEFIT
In a previous email we discussed AIME, which is your Averaged Indexed Monthly Earnings. Social Security takes your AIME and provides you a benefit based (your PIA) on the bend points. It’s a pretty simple calculation actually, once you know how it works.
Say my wife Charlotte’s AIME is $6000. We can quickly figure her Primary Insurance Amount (PIA) like this.
0-$895 * .90 = $805.5
$895-$5397 * .32 = $1440.64
$6000-$5397 * .15 = $90.45
Her Total PIA = $2336.59
That will be the benefit she will receive on her record at her Full Retirement Age (FRA). (If these acronyms are confusing, please go back to previous emails and bone up on them. It’s incredibly important. If you were not on the list for those emails let me know and I’ll get them to you.)
To figure one’s Spousal benefits you need to know what your own benefit is first.
It goes like this:
Charlotte, my spouse, has a PIA of $2336.59. Now we’ll say my AIME was $1500 which means my PIA is $999.1
Here’s how we get this number:
0-$895 *.90 = $805.50
$1500-$895 * .32 = $193.60
At my FRA I go to the Social Security Admin and say I want to file for my benefit. They then calculate the greater of 1/2 of Charlotte’s benefit or my own and pay me whatever is more.
1/2 of Charlotte’s benefit is $1168.29. My own benefit is $999.10. Thus, I receive $1168.29 (In reality, what they are doing is paying me my own benefit plus a boost to get to half of Charlotte’s PIA.)
Don’t forget, ex-spouses can also qualify for SPOUSAL benefits so long as they were married more than 10 years.
These are COMPLETELY different, my friends. Do not mix up SURVIVOR BENEFITS with SPOUSAL BENEFITS. Two completely separate entities.
Let’s say Charlotte got run over by a bus while we are married. So long as we’ve been married for at least 9 months, I will receive the greater of my benefit or the benefit she was receiving at her death.
If Charlotte had taken her benefit at her FRA that benefit would have been $2336.59 which is now the benefit I receive, assuming I am also at FRA. There are many rules that go into survivor and spousal benefits I won’t get into here, but just remember, you need to be married at least 9 months.
If you are an ex-spouse and were married for more than 10 years you also may be eligible for Survivor benefits.
In my example above, Charlotte took her benefit at her FRA which paid $2336.59. At my FRA I took my SPOUSAL benefit which was $1168.29.
So combined we were bringing in $3404.88 a month in Social Security benefits. That’s over $40k a year income, folks without anything special going on. Just BASIC planning.
However, at Charlotte’s death, I lose my SPOUSAL benefit and get my SURVIVOR benefit which is $2336.59 a month, or $28k a year.
And that, in a nutshell, is how it works.
Now, are there planning opportunities you can do??? Absolutely! In fact, if you aren’t contemplating maximizing your Social Security benefits, you’re wrong. No two ways around it.
“But Josh, Social Security won’t be there for me!” That’s crazy talk, people. Don’t fall for this silliness.
It’s completely solvent to pay out all promised benefits to the year 2034. Then it will only pay out 77cents on the dollar. But even then it will pay 77cents on the dollar until 2091 when it will only be able to pay 71 cents on the dollar.
I’m not saying that’s good. I’m just saying I grow tired on the talk of insolvency when it simply is not correct.
If you want more info on Social Security go to my Youtube channel playlist here. 27 videos and counting just on Social Security topics alone. Forget binge-watching Poldark as my wife and I are, watch this instead!