How Social Security Spousal Benefits Really Work: A Case Study

“Hey Marcia,” began a call from “Barb.” “Last night I had dinner with my older sister, and we got talking about my spousal benefits for Social Security…”

Big sister “Georgia” explained how Barb can collect half her husband’s benefit now and wait to collect her own maximum benefit until 70. Barb wanted to confirm how the process would work.

First, the Specifics

Barb and Tom have been married for 35 years. He was born in 1950, reached his full retirement age (FRA) of 66 in 2016, and waited to claim until 70. He got a 32% increase in monthly benefits. Great!

Barb was born January 1956. Her FRA is 66 years and 4 months, and she’ll reach FRA May 2022.

Knowing just those two pieces of information, have you already connected the dots where big sister had good intentions but was incorrect/?

Technical Rules Always Apply

Married or eligible divorced persons may qualify for spousal benefits. However, they cannot split their benefits and choose to take spousal benefit first. (Exception: If the higher earner has not yet claimed benefits, there will be a gap in timing, but not a separation of benefits.)

Therefore, Barb cannot collect spousal benefits first, then claim her own later. That is a “restricted application” strategy, and it closed to those born after Jan. 1, 1954.

Barb’s Possible Claiming Options

If Barb is a dependent spouse, she has not earned her own 40 credits. Instead, she will be eligible for a full spousal benefit at her own FRA. The maximum spousal benefit is 50% of the higher earner’s primary insurance amount — not the amount that spouse is collecting.

In Barb’s case, she is independently eligible for her own benefit. But is it higher than 50% of Tom’s PIA?

• If yes, she will not receive any spousal benefits at all. When she claims, she’ll get her own worker’s benefit.
• If no, she is entitled to a spousal benefit “top-up.” Her own benefit will get paid first, then any additional top-up is added on. This way, she would receive an amount equal to 50% of Tom’s PIA (if she claims at her own FRA). Under the hood, her benefit tabulated from both sides needs to be considered.

A Look at the Numbers

Let’s assume Tom’s PIA was $2,600 a month. He waited to claim until age 70, so he’s receiving around $3,600 a month, including cost-of-living adjustments.

Barb’s own benefit will be compared to half of his PIA. The SSA will determine her highest calculated benefit: her own benefit or a combination of her benefit plus a spousal top-up.

Let’s assume her own PIA is $1,800 and she claims at FRA. The comparison:

• Based on her own worker record, she’d get $1,800; or
• For a spousal benefit, her calculated benefit is 50% x $2,600 = $1,300.

In this situation, she’ll only receive her own benefit. Her wages were high enough to create a Social Security benefit that’s more than half his PIA.

Now, let’s say her own worker PIA = $1,000. Her calculated spousal benefit is still $1,300. When she claims, she’s deemed to claim both benefits: her own plus her spousal top-up. Again, she cannot split the benefits — they come joined together in one single payment.

When Barb claims at FRA, she’ll technically receive her own $1,000 plus a $300 spousal top-up. Because Tom already is claiming, once she files, she’ll simultaneously get both pieces to her benefit package.

Her Advisor Missed an Opportunity

There is no splitting or choosing benefits when born after Jan. 1, 1954. Barb’s big sister happens to be four years older, born in 1952. So, Georgia was in fact eligible for the restricted application.

She claimed spousal benefits first, and recently switched to her maximum benefit at age 70. Her advice was sound; she just didn’t know about the closed loophole.

More frustrating to Barb, “Our financial advisor never talked to us about my Social Security.”

Either the advisor doesn’t know enough about Social Security to help, or they missed the opportunity to offer important, critical retirement income advice. How Barb decides to address this may turn out to be a problem for the advisor.

Marcia Mantell is the founder and president of Mantell Retirement Consulting Inc., a retirement business development, marketing & communications, and education company supporting the financial services industry, advisors and their clients. She is the author of “What’s the Deal with Retirement Planning for Women/?” and “What’s the Deal with Social Security for Women?” She blogs at BoomerRetirementBriefs.com.