By Brian Ellenbecker CFP®, EA®, CPWA®, CIMA®, CLTC®
Choosing when to apply for Social Security benefits is an important decision and can greatly impact a person’s ability to meet their retirement goals. The decision becomes more complex if a person is or was married or has children eligible to receive benefits. It’s possible those individuals could also be entitled to benefits based on the worker’s Social Security record. Understanding the benefits available to these other individuals and the planning strategies available to them is important to ensure Social Security benefits are maximized over time.
Benefits for spouses
Keep the following terms in mind as spousal benefits are discussed:
- Working spouse: the spouse whose earnings record will be used to provide spousal and/or survivor benefits
- Lower-earning spouse: the nonworking spouse or the spouse who earns less; the person who will receive the spousal or survivor benefit
Spousal benefits (paid while both spouses are living)
A lower-earning spouse is entitled to spousal benefits after being married for one full year prior to applying for benefits. At full retirement age (FRA), the lower-earning spouse is entitled to the greater of:
- Their own benefit OR
- 50% of their spouse’s FRA benefit.
If the lower-earning spouse files for benefits prior to FRA, a lesser amount will be received. Claiming at age 62 results in a spousal benefit anywhere between 32.5% to 35% of the working spouse’s FRA benefit amount, depending on the lower-earning spouse’s birth year and FRA. The starting point for the spousal benefit calculation is always the working spouse’s FRA benefit, regardless of when they actually filed for their benefit. Any downward adjustment is based on when the lower-earning spouse files for the spousal benefit.
To claim a spousal benefit, the working spouse must have already claimed their own benefit. If the working spouse is delaying benefits, the lower-earning spouse will have to wait to file for spousal benefits. However, they could file for their own benefit earlier. They would later receive a spousal add-on to increase their benefit once the working spouse files (assuming their own benefit was lower to begin with).
If the lower-earning spouse files for benefits prior to FRA, the spousal benefit can be reduced or eliminated if either the lower-earning spouse or the working spouse earns employment income while under FRA. For 2021, earnings above $18,960 will reduce Social Security benefits by $1 for every $2 above that threshold.
A Social Security applicant’s own benefit is typically paid first. If the applicant’s FRA benefit is less than 50% of the working spouse’s FRA benefit, the difference will be paid as a “spousal add-on” bringing the total benefit paid up to the spousal benefit amount.
If a worker was born on or before January 1, 1954, they can file a “restricted application” at FRA (or later) for spousal benefits. Filing a restricted application allows the worker to file for spousal benefits only. Their own benefit continues to earn delayed retirement credits until they switch to their own benefit, which can be done as late as age 70. This strategy is typically used when the lower-earning spouse files for their own benefit, allowing the higher-earning spouse to file a restricted application and receive spousal benefits from 66 until 70.
Spousal benefits are also available to divorced spouses, assuming certain marriage requirements are met. If the requirements are met, the ex-spouse is entitled to spousal benefits as if they were still married.
In order for a divorced spouse to be entitled to spousal benefits on an ex-spouse’s work history, they must meet the following criteria:
- The couple were married for at least 10 years.
- The spouse seeking spousal benefits must not be currently married.
- They must have been divorced for two years or more (this requirement is waived if the worker was receiving benefits prior to the divorce).
The lower-earning spouse must be at least age 62 to file for spousal benefits on an ex-spouse’s earnings record. The ex-spouse must also be age 62 or older, although they don’t need to have filed for benefits.
A divorced spouse filing for benefits on an ex-spouse’s record has no impact on the benefits of the ex-spouse or any other family benefits. Both a spouse and one or more ex-spouses can receive benefits from a worker’s earnings record without negatively impacting each other’s benefits.
Survivor benefits (paid after one spouse has passed away)
If a marriage lasted for at least nine months when one spouse passes away, the surviving spouse may be entitled to a survivor benefit. A surviving spouse is entitled to the greater of:
- Their own benefit OR
- 100% of their spouse’s benefit, assuming the survivor benefit starts after the survivor’s FRA.
Please note: The above statement is a high-level overview of the survivor benefit calculation. The actual calculation of a survivor benefit can be quite complicated, depending on the age of the survivor and the age of the deceased spouse and their claiming status at the time of death. Consult with the Social Security Administration or other expert for assistance in determining the actual survivor benefit amount.
Survivor benefits are available as early as age 60. Benefits will be reduced if the surviving spouse starts survivor benefits prior to their FRA. Survivor benefits do NOT earn delayed retirement credits. Therefore, there is no incentive to wait on survivor benefits beyond FRA.
There is more flexibility in planning for survivor benefits than for spousal benefits. If the surviving spouse needs maximum income as soon as possible, they should start the higher benefit right away. However, if the goal is to maximize the amount of Social Security received over time, the surviving spouse can start the lower benefit as soon as possible and delay claiming the higher benefit for as long as they can. Consider these two common scenarios:
- If the surviving spouse’s own benefit is higher, they should start the survivor benefit at age 60 and switch to their own benefit at age 70.
- If the survivor benefit is higher, they should start their own benefit at age 62 and switch to the survivor benefit at FRA.
If the survivor is under FRA and plans to continue working, the reduction in benefits due to earned income applies.
All the above rules also apply to a divorced spouse, as long as the marriage lasted at least 10 years and the person is either unmarried or remarried after age 60.
Benefits for kids
Under certain circumstances, unmarried children may also be entitled to benefits if at least one of their parents is retired, disabled or deceased. The child must be younger than age 18 (age 19 if in high school) or 18 or older with a disability that began before age 22.
An entitled child may receive 50% of the parent’s FRA benefit if the parent is retired or disabled. They receive 75% of the benefit if one of their parents is deceased.
There is a limit to the total amount that a family can receive from Social Security based on one worker’s earnings record. This is referred to as the Family Maximum. The Family Maximum typically falls between 150% and 180% of the worker’s Primary Insurance Amount (PIA), depending on benefit levels. The Family Maximum does not include the spouse’s own retirement benefit, nor any benefits paid to an ex-spouse.
These rules can be very complicated and nuanced. This article just scratches the surface. It’s important to work with the Social Security Administration to ensure that families are maximizing the benefits they are entitled to while avoiding any pitfalls along the way.
Brian Ellenbecker, CFP, EA, CPWA, CIMA, CLTC, is a financial planner with Shakespeare Wealth Management in Pewaukee. Contact him at 262-814-1600 or email@example.com