How Filing Early Or Late Impacts Benefits Under Dual Entitlement
Im going to make the assumption that you are the one who will be receiving the spousal benefits. If you look at the chart below, that means that the center shows your filing age. The left-hand column shows reductions or increases to your own benefit. The column on the right shows the reductions or increases to your spouses payment.
Lets make the assumption that your full retirement age is 67 . At full retirement age you would receive 100% of your own benefit. You would also receive 100% of your spousal amount.
If you file a year early, at 66, you would receive 93.33% of your benefit and 91.67% of your spousal amount. At 65 it would be 86.66% of your benefit and 83.33% of your spousal amount.
You can see that the difference in reductions between your benefit and the spousal benefit continue to widen all the way back to the earliest age of filing, which is age 62.
The other notable part of the difference is that your own benefit will increase if you delay filing, but your spousal payment will not increase.
So just to make sure we are real clear on how a spousal benefit will actually be reduced, let me walk you through an example where we use dollars.
Lets continue with our assumption from earlier, that the higher-earning spouse has a full retirement age benefit of $2,000 and the lower-earning spouse has a benefit of $800.
But now theres a small wrench Id like to throw into the machine here to make this interesting.
If You’re Receiving Other Retirement Benefits
The calculation gets a bit more complicated if you are eligible to receive benefits from a government pension or foreign employer that is not covered by Social Security. In that case, you may still be eligible, but the amount will be reduced.
For example, if you have a government pension for which Social Security taxes are not withheld, the amount of your spousal benefit is reduced by two-thirds of the amount of your pension. This is known as a government pension offset.
For example, suppose you are eligible to receive $800 in Social Security spousal benefits and you also get $300 from a government pension each month. Your Social Security payment is reduced by two-thirds of $300, or $200, making your total benefit amount from all sources $900 per month + $300).
Social Security In The Us
Before Social Security , care for the elderly or disabled in the U.S. wasn’t a federal responsibility if they weren’t cared for by family, it fell into the hands of municipalities or states. This changed in 1935 when the Social Security Act was first established in the U.S. by President Franklin Roosevelt. The first taxes were collected starting in January 1937, which enabled monetary assistance to qualified Americans with inadequate or no income. Originally, SS was just a program that paid out retirement benefits, but a 1939 change added survivors benefits for a retiree’s spouse and children. In addition, in 1956, disability benefits were added.
Today, SS in the U.S. plays a very important role in keeping a lot of older Americans out of poverty. For most Americans in retirement, it is their major source of income, and for a significant percentage, it is their only source of income, even though SS was never intended to be a full replacement of income. On average, SS pays lower-wage earners higher relative benefits than higher-wage earners. In addition, lower-wage earners tend to pay less tax and are more likely to receive social insurance disability income and survivor benefits. SS is sometimes referred to as Old Age, Survivors, and Disability Insurance .
Social Security Facts
Also Check: Age For Maximum Social Security Benefit
How Spousal Benefits Are Calculated
Spousal benefits are based on how much the other spouse would receive if that person began collecting benefits at the full or “normal” retirement age.
The Social Security Administration has an online calculator that can show you what percentage of your spouse’s benefits you will be eligible for depending on your own age when you start receiving benefits.
The short answer to the calculation is this: You’re eligible for half of your spouse’s benefit amount as long as you wait until your full retirement age to apply. The earlier you file, the less you’ll get.
How Does Early Retirement Affect Benefits
Social Security is based on your lifetime earnings. Anyone will lose part of their own benefit if they retire early.
If you begin getting a spousal benefit before you reach your FRA, your benefit will be permanently lower. This is true unless youre caring for a qualifying child. Depending on how early you retire, this income will be reduced by as much as 35%.
You can find out the exact amount by putting various ages into the Social Security Administrations website. The website will show you what you can get at different ages and how working longer will change your income after you retire.
Your spousal benefits won’t be reduced if you’re caring for a child who is under 16 or who receives Social Security disability benefits.
If your spouse and/or you want to take Social Security benefits early, you will need to think about the long-term effects before you do. Taking early benefits will lower the income that may be paid out over your lifetime.
It will also lower the benefit that the surviving spouse can get after one of you passes away. Married couples should plan how and when they should each begin taking their benefit.
You can run these numbers yourself to see how it works by using an online Social Security calculator. You can also talk to a financial planner for advice on how to plan your benefits.
Don’t Miss: T Rowe Price Employee Benefits
Complicating Factors: Spousal Benefit Reductions
An assortment of other factors can come into play, which could reduce your benefit as a spouse. For example:
- If you are receiving a retirement benefit of your own, your spousal benefit will be reduced.
- If you file for spousal benefits prior to your full retirement age, your spousal benefit will be reduced.
- If you are receiving a government pension from work that wasnt covered by Social Security taxes, your spousal benefit will be reduced by the government pension offset.
- If your spouse is disabled or if you have a minor child or adult disabled child, the family maximum rules may result in your spousal benefit being reduced.
- If you are collecting a spousal benefit while under full retirement age and you are working, the earnings test may result in some or all of your spousal benefit being withheld.
We will discuss the GPO, family maximum rules, and earnings test in other articles. For now, we will discuss only the first two potential sources of reduction: entitlement to your own retirement benefit and filing prior to full retirement age.
Who Can File For Social Security Spousal Benefits
To be eligible for spousal benefits, you must be married, divorced or widowed, and your spouse either is or was eligible for Social Security.
The spouse must be at least 62 years old or have a qualifying child a child who is under age 16 or who receives Social Security disability benefits in his or her care.
Both opposite-sex and same-sex married couples are eligible for Social Security spousal and dependent benefits. So are some individuals in legal relationships such as civil unions and domestic partnerships. And those who were married for at least 10 years and have been divorced for at least two years also can apply.
Spouses can claim benefits based on their own work history or their spouses work history. They will automatically collect whichever amount is larger, but not both.
You May Like: What Are My Ss Benefits When I Retire
Maximize My Social Security
Maximize My Social Security covers just about any Social Security claiming scenario you might end up with. This includes things like:
- Child benefits for parents
- Whether your spouse is getting benefits
- Survivor benefits after a spouse’s death
This tool also accounts for the windfall elimination provision and government pension offset. This will affect you if you get a pension from an employer who didn’t withhold Social Security tax from your earnings. State employees, for example, may find this helpful.
Maximize My Social Security also provides links to topics and news about retirement. These come from many different sources.
This calculator costs $40 for a yearly household license.
Make sure you have your personal information ready to go when you first use this one. It asks that you input both your past and projected earnings. You can get this from your online or paper Social Security statement.
Is There A Maximum Benefit
Yes, there is a limit to how much you can receive in Social Security benefits. The maximum Social Security benefit changes each year. For 2022, itâs $4,194/month for those who retire at age 70 . Multiply that by 12 to get $50,328 in maximum annual benefits. If that’s less than your anticipated annual expenses, youâll need to have additional income from your own savings to supplement it.
Also Check: What Age Can I Get Medicare Benefits
How Can I Switch From My Social Security Benefit To A Spousal Benefit
You can only switch from your benefit to the spousal benefit if your spouse has not begun receiving retirement benefits. You can claim your benefit based on your work history until your spouse files, and then you can switch to the spousal benefit. However, if you’re not at your full retirement age, you’ll get paid a reduced spousal benefit, which can be as low as 32.5% of your spouse’s primary insurance amount.
To monitor your benefits or change them, you can create an account on the Social Security site. It contains a wealth of information, and it allows you to make some changes online, although others require a phone call.
How Are Social Security Survivor Benefits Calculated
To understand Social Security benefit calculations, you first need to understand one piece of jargon: primary insurance amount . A persons primary insurance amount is the amount of their monthly retirement benefit, if they file for that benefit exactly at their full retirement age.
If your spouse has died and you file for a benefit as their survivor, your benefit will depend on:
- Your deceased spouses PIA,
- Whether your deceased spouse had already filed for his/her retirement benefit ,
- The age at which your spouse died, and
- The age at which you file for your benefit as a surviving spouse.
Lets first assume that you have reached your survivor full retirement age by the time you file for your survivor benefit.
If your spouse had not filed yet for his/her own retirement benefit by the time he/she died, then:
- If your spouse died prior to his/her full retirement age, your benefit as a surviving spouse will be your deceased spouses PIA.
- If your spouse died after reaching his/her full retirement age, your benefit as a surviving spouse will be whatever he/she would have received as a retirement benefit, if he/she had filed on his/her date of death.
If your spouse had filed for his/her own retirement benefit by the time he/she died, then your benefit as a surviving spouse will be the greater of:
- The amount your deceased spouse was receiving at the time of his/her death, or
- 82.5% of your deceased spouses PIA.
Don’t Miss: What Benefits Does Medicare Provide
The Good News And Bad News: Your Social Security Benefit Calculation Is Based On More Than Your Lifetime Earnings
It takes a bit of strategy to figure out your best move.
- Resize icon
Life can be complicated Social Security tries to make up for that.
The amount that a person is entitled to when it comes to claiming Social Security goes beyond just what theyve earned over a lifetime of paid employment.
This is especially true when it comes to married couples because quite often there is a significant difference in the lifetime earnings records for two married people.
This may occur because one or the other spouse takes time off while the children are young and in school. Or there could be a health situation limiting one spouses working years. In the case of self-employment, the income might be stacked on one member of the couple more than the other.
Whatever the reason, when a couple is approaching retirement age and reviews their projected Social Security benefits, one member of the couple often has a much larger benefit than the other. When this occurs, Social Securitys rules have a way to make up for the foregone benefits of the lower earning spouse, by adjusting the available benefits based upon the higher earning spouses earnings. The maximum adjustment can bring the total benefits of the lower earning spouse up to 50% of the benefit of the higher earning spouse.
Spousal Benefit Reduction Due To Early Entitlement
If you file for a spousal benefit prior to your full retirement age, that spousal benefit will be reduced due to early filing. The reduction is 25/36 of 1% for each month early, up to 36 months. For each month in excess of 36 months, the reduction is 5/12 of 1%.
Example : Bobs full retirement age is 67. Bob files for his retirement and spousal benefits at age 65 . As a result, his spousal benefit will be reduced by or 16.67%.
The final calculation of Bobs spousal benefit will be 83.33% x . And to that, we would add Bobs own retirement benefit to find the total amount of his monthly benefit.
You May Like: What The Maximum Social Security Benefit
Social Security Spousal Benefits Explained
- Social Security spousal benefits can pay an eligible spouse 50% of the partners benefit if it is higher than his or her own benefit. Claims can begin at age 62 but may be worth more at full retirement age. Read our Social Security review to learn more.
Social security is complicated for individual filers, and being married can make it even more complicated. Thats because Social Security includes benefits for the spouse as well as the individual.
When an individual files for retirement benefits, that persons spouse may be eligible for a benefit based on the worker’s earnings according to the Social Security Administration.
In this Social Security review, we outline the rules for spousal benefits.
Social Security For Retirement
The biggest determinant of retirement benefit amount is lifetime earnings since the benefit is based largely on the average of a person’s 35 highest-earning years. Because the SS tax is regressive, in retirement, lower-income earners will have a higher portion of their SS retirement benefits paid out in relation to their lifetime earnings than higher-income earners. Another important determinant of benefit amount is the age at which a person applies for retirement benefits.
SS is designed to replace about 40% of the average American worker’s pre-retirement income. This value is dependent on each individual’s work history higher-income earners will receive larger SS checks than lower-income earners, but the check will be a smaller percentage of their pre-retirement income. SS is not intended to be a sole source of retirement income, and as such, it is advisable to have other forms of income in retirement. This can take the form of anything from rental property income to annuities, mutual funds, or even tax-shielded retirement plans such as a 401 and/or IRAs.
Full Retirement Age
Retirement Benefits While Working
When to Apply for Social Security Retirement Benefits
- The immediate need for cash
- Life expectancy
- Relative age, income, and health of spouse
Social Security Credits
Receiving Retirement Benefits Outside of the U.S.
You May Like: When Do Social Security Benefits Become Taxable
What Happens If You File For Your Own Benefits Before Youre Eligible For A Spousal Payment
What happens if someone files for their own benefit, but is not yet eligible to receive the spousal payment? The answer, and the next calculation Im going to show you, has confused a lot of people.
This actually happens fairly often, due to the rule that says before a spousal payment can be paid, the higher-earning spouse must file first. We can figure out how this works by using the chart from above and continuing our example of a higher- and lower-earning spouse in a marriage where each is entitled to their own benefit but the lower-earning spouse may also get a spousal payment.
Lets assume that the lower-earning spouse has reached full retirement age and they file for their benefit of $800. If the higher-earning spouse has already filed, theyll get the spousal payment of $200, but if they havent already filed, they will not get the spousal payment. That would keep their total payment to $800.
This goes for any age at which the lower-earning spouse files as long as the higher-earning spouse has not yet filed. The lower-earning spouse cant get the spousal payment in this scenario, so their total payment would only be their own benefit, reduced or increased for filing age.
Now, lets step this up to a more likely scenario where the lower-earning spouse files for benefits and two years later, the higher-earning spouse files for benefits. When the higher-earning spouse files, it entitles the lower-earning spouse to the spousal payment.
But how would this be calculated?
Reduction For Early Filing
If you file for a survivor benefit prior to your survivor full retirement age, your benefit as a survivor will be reduced.
Specifically, if you file as early as possible , then your benefit as a survivor will be 71.5% of what it would have been if you waited until your survivor FRA.
From there, your survivor benefit increases proportionately until you reach your survivor FRA. For example, if you file for your survivor benefit halfway between age 60 and full retirement age, the amount you receive will be 85.75% of the amount that would have received if you waited until FRA.
Also Check: 529 Plan Texas Tax Benefit