Tips on Social Security Spousal Benefits

Here is some expert advice about how couples might approach Social Security spousal benefits.

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Many people are living longer lives, nest eggs are exposed to investment turmoil, and government benefit programs face mounting financial and ideological pressures. Against this backdrop, the stakes are high for making smart moves about when and how to claim Social Security benefits.

Social Security card on black background

Among Social Security claiming decisions, few areas are more complicated than the program's provisions allowing a person to claim benefits based on their married (or even divorced) spouse's Social Security earnings record. Before wading ahead, here are two important overview considerations to keep in mind:

1) The best advice on Social Security hinges on a combination of variables that may be unique to an individual person or couple. What's your health and longevity outlook? How much money do you have set aside already? Do you have any traditional pension income coming your way? Are there special family health and financial obligations? What are your preferences regarding leaving assets for your heirs? Then there are the specific facts about your Social Security statement —how long have you and your spouse worked, what are your respective benefits likely to be, what is the time difference between your ages, and how old are you now?

You can probably come up with your own additions to these variables. The bottom line is that your circumstances are likely to frame a very specific solution. You need to do your own homework here. And you should be wary of one-size-fits-all advice or answers.

2) The Social Security crisis is an over-hyped non-event. If Congress and the White House had been so inclined anytime during the past 20 years, the small fiscal imbalance in Social Security could have been fixed with adjustments so modest they wouldn't even have made the news. Each year of delay, of course, makes the scale of the fiscal gap and the cost of closing it steeper. Even so, putting Social Security on rock-solid ground for the next 75 years is still among the easiest corrections among our financial problems. The biggest gap here is in leadership, not dollars.

Underlying a lot of the thinking about Social Security spousal benefits is the calculation of what will happen to a household's Social Security income when one spouse dies. When that happens, the surviving spouse is allowed to continue either their own benefit or, if it's higher, their spouse's benefit. They cannot continue both. The death of a spouse thus can inflict enormous damage on the survivor's finances. Usually, the loser here is a surviving wife. Women tend to outlive men by several years and also are often younger than their husbands when they marry. Looking down the road, Social Security decisions for women thus become a key issue.

Another foundational component of spousal benefits involves the ages at which people can receive benefits and the pluses and minuses of claiming decisions made at different ages. It is possible to begin drawing Social Security at the age of 62 or wait until as late as the age of 70. Each year one waits, benefits increase by about 8 percent a year plus the rate of inflation. Before reaching what's called full retirement age, which is 66 for people nearing retirement today, there are rules reducing benefits depending on how much outside earnings people make. Those penalties disappear at full retirement age.

U.S. News sought advice on spousal benefits from the Social Security Administration and two private experts—Boston University economist Laurence Kotlikoff and Marc Kiner, a fee-based Social Security adviser.

It is generally unwise, they agreed, for a person to claim spousal benefits before they've reached 66. Doing so at an earlier age is deemed by the agency as having filed for the person's own benefits, not just a spousal payment. "Generally, when a person files an application for Social Security, the application is for all benefits," said agency spokeswoman Kia Green. "A person cannot restrict the scope of their application until they reach full retirement age."

"If a person is eligible for his or her own retirement benefit and for spousal benefits, we will pay their own benefit first," Green added. "If their spousal benefit is higher than their own retirement benefit, they will receive a combination of benefits equaling the higher benefit amount." However, doing so would prevent them from filing for their own benefits at a later age and receiving a higher monthly payment.

When both spouses have reached their full retirement age, it may makes sense for the higher-earning spouse to "file and suspend" their benefits. If this was the husband, Kiner explained, "He will file an application for benefits and then tell Social Security not to send him a check. His benefits will grow due to the delayed retirement credit of eight percent per year until his actual payments begin."

"The wife at her FRA (of 66) will file a 'restricted application' to only receive spousal benefits," he added. Doing so provides her half of her husband's benefits at age 66 and also allows her to delay receiving her own benefits and enjoy the same 8 percent increase in their annual value as her husband will receive by delaying his benefits.

"It's also possible, if she was a very low earner, that it's best for the husband not to file and suspend," Kotlikoff said. "She then collects her retirement benefit starting at 62, and then at full retirement she starts collecting her spousal benefit," which will have grown due to the husband's deferral of his filing for benefits.

The decision about which spouse should claim spousal benefits may not always favor the lower-earning spouse. It can also be influenced by the relative ages and health histories of the spouses—another reason navigating spousal benefits are so complicated.

Twitter: @PhilMoeller