Lynn Brenner's Family Finance

What Determines My Spousal Social Security Benefit?

Lynn Brenner — Wed, 15 Feb 2012 14:33:37 -0500

Q: Will my benefit as a spouse be smaller because my wife took Social Security early? She started receiving Social Security when she turned 62. I don't plan to claim my spousal benefit until I'm 66, which is my full retirement age. Will I get 50% of my wife's reduced benefit, or will I qualify for 50% of her full retirement benefit?--FM

A: Your spousal benefit isn't reduced because your wife applied for Social Security early. If you apply for it when you're 66, you'll receive 50% of her full retirement benefit.

Her age when she filed for Social Security is irrelevant. Your spousal benefit is based on how old you are when you apply for it. Apply at 66, and you get 50% of her full benefit. If you apply when you're 62, you only get 35% of her full benefit.

Her full benefit is what's known in Social Security jargon as her Primary Insurance Amount, or PIA. It's the amount she would currently be receiving if she had started Social Security at her full retirement age.

Your spousal benefit is always a percentage of your husband or wife's PIA, no matter how early or late he or she started collecting Social Security says Linda Lauria, a Social Security Administration spokeswoman in New York City.

Take that hypothetical couple, Dan and Rosanne. Let's say Rosanne's PIA -- the amount she'd receive at age 66 -- is $1,000 a month. But she retires at 62, so she gets 25% less. Her reduced benefit: a monthly check for $750.

For the next four years, Social Security benefits get a 3% annual cost of living increase. Thanks to these four inflation adjustments, Rosanne's $750 monthly check has grown to $844.16

Her husband Dan, now 66 years old, decides to postpone taking his own benefit. He restricts his Social Security application to his spousal benefit. (See my previous post.)

Since he has reached full retirement age, his spousal benefit is 50% of Rosanne's PIA. Her PIA -- the amount she'd be getting had she retired at 66, remember -- is now $1,125.50, thanks to those four years of inflation adjustments. Dan's spousal benefit is therefore 50% of $1,125.50, or $562.75 a month.

But what if Rosanne had made a different decision and retired after her full retirement age? In that case, her monthly benefit would be boosted by Delayed Retirement Credits -- an extra 8% credit for each year she delayed taking it between age 66 and age 70.

Again, let's assume four years of 3% annual inflation adjustments, which boost her PIA to $1,125.50 a month. The four years of Delayed Retirement Credits are worth an extra $320 a month. The upshot: when Rosanne starts collecting Social Security at 70, she'll get a monthly check for $1,445.50.

But Dan's spousal benefit isn't bigger because she postponed her own Social Security application. At 66, he'll still $562.75 a month -- 50% of her $1,125.50 inflation-adjusted PIA.

However, his widower's benefit will be bigger if Rosanne predeceases him. As a surviving spouse, he'll be entitled to 100% of whatever amount she was collecting, which includes her Delayed Retirement Credits.

Please send your questions to Lynn@LynnBrennersFamilyFinance.com. I'm sorry I can't respond personally to every email. Questions are only addressed online.

Timing is Everything When You Claim Social Security

Lynn Brenner — Thu, 09 Feb 2012 12:12:57 -0500

Q: My wife has already applied for her own Social Security benefit. Does this mean she can't apply for a spousal benefit later? - JC

A: Your wife automatically applied for her spousal benefit when she applied for her own benefit. Both benefits are reflected in her monthly Social Security check.

If you qualify for two benefits when you apply for Social Security, your application is deemed to be for both, and you receive an amount equal to the larger of the two. For example, if your wife's benefit based on her own record was $1,000, and her spousal benefit (based on your record) was $1,025, she'd receive $1,025. If her own benefit was $1,000 and her spousal benefit was $800, she'd receive $1,000.

True, there is one important exception to this rule, but only for people who a) are at their full retirement age, and b) haven't previously filed for Social Security.

If you meet both those requirements, you can specifically restrict your application to one of the two benefits, and switch to the other one later on. In newspaper and magazine articles, and earlier posts on this blog, I've written a lot about this.

But the goal of this strategy is to postpone your own benefit, not your spousal benefit. When you postone your own benefit after you reach full retirement age, it grows 8% a year for up to four years of delay (plus annual inflation adjustments). By contrast, you wouldn't gain anything by postponing your spousal benefit. The maximum spousal benefit is 50% of your mate's full retirement benefit, and that's what you qualify for when you apply for Social Security at your full retirement age.

Let's assume your wife's full retirement age is 66. If she had waited until she was 66 to apply for Social Security, she would have had two choices: a) apply for 100% of her own benefit, automatically also applying for 50% of your benefit. The result: she'd get the larger of the two amounts. Or b), specifically restrict her application to her spousal benefit alone. The result: she could collect 50% of your benefit until she turned 70, and then switch to her own benefit. At that point, her own benefit would be 32% bigger than the amount she would have received had she taken it at 66.

Please note, I said 'switch' from the spousal benefit to her own benefit. You can never receive your own benefit and your spousal benefit at the same time.

Please send your questions to Lynn@LynnBrennersFamilyFinance.com. I'm sorry I can't respond personally to every email. Questions are only addressed online.

'Sweet Spot': The Key 11 Years of Retirement Planning

Lynn Brenner — Thu, 02 Feb 2012 09:00:00 -0500

If you're nearing age 59 or you haven't yet reached age 70, listen up.

You're standing in a window of opportunity -- the 'sweet spot' of retirement planning. Now's the time to take steps to protect your future retirement income from the ravages of annual taxes and market volatility. For more, see my recent Reuters article "Six Ways to Maximize Retirement 'Sweet Spot' Years".

Please send your questions to Lynn@LynnBrennersFamilyFinance.com. I'm sorry I can't respond personally to every email. Questions are only addressed online.