In 2009, I wrote a post on the key concepts of Social Security spousal benefits. This popular post continues to receive numerous search hits and comments. I regularly receive email questions about different claiming strategies involving married couples and Social Security. A frequent area of confusion is what happens if the spouse with lower lifetime earnings retires early and begins receiving Social Security retirement benefits at age 62.
(1) The lower earning spouse (the wife in this hypothetical) begins receiving Social Security benefits at age 62.
(2) The husband continues to work (or at least delays claiming benefits) until age 70.
(3) When the husband retires, the wife switches to a spousal benefit that is equal to 50% of the husband’s final benefit, which in this hypothetical would be greater than the wife’s benefit.
Unfortunately, it doesn’t work that way.
First, the maximum spousal benefit is 50% of the the other spouse’s “full retirement amount.” In other words, if the husband is entitled to a benefit of $1500/month at his full retirement age of 66, the most that the wife can receive as a spousal benefit is $750/month. This is true even if the husband waits until age 70 and then receives a benefit closer to $1000/month.
Second, by retiring at age 62, the wife suffers a permanent decrease in her spousal benefit. Although the formula is somewhat complicated, it generally works this way. Let’s assume that the wife’s full retirement benefit (at age 66) is $550/month. The difference between that amount and one-half of the husband’s full retirement benefit of $1500 is $200. At age 62, the wife’s benefit is only $410. When the husband retires, the wife claims her spousal benefit. In this case, the $200 difference is “added” to her $410 benefit, providing a total spousal benefit of $610/month. Thus, instead of a 50% spousal benefit, the wife’s benefit is only 41% of what the husband receives. This reduction is permanent.
Of course, there are many other factors to consider in the total benefit picture for a married couple. But if one goal is to maximize the spousal benefit, the nuances discussed above should not be overlooked.