The Big Thing Clients Don't Get About Social Security Spousal Benefits

Both financial advisors and consumers have been reaching out recently asking about when and how to claim spousal benefits, and which benefit to claim first.

They mistakenly assume there is a choice to be made.

Surprisingly, there’s a whole lot of confusion about “spousal” benefits. Just because you’re a spouse doesn’t mean you get Social Security “spousal benefits.” And there is no choosing between your own benefit and your benefit as a spouse.

Let’s go through the details and connect some dots for married couples.

‘Spousal’ Benefits Are Simply a Comparison

A “spousal” benefit is not simply awarded to a spouse because they are a spouse, although you must be a spouse (or ex-spouse) to be considered for a spousal benefit.

Technically speaking, the spousal benefit is a multi-part calculation and comparison. Social Security will look at 50% of the higher-earning spouse’s primary insurance amount (PIA) and compare it to the lower-earning spouse’s PIA. Whether the lower earner gets a “spousal” benefit or not depends on their own work record and PIA:

• If the lower earner doesn’t have 40 credits to get a benefit on their own, they receive 50% of the higher earner’s PIA, or less if claiming before full retirement age.
• If the lower earner has a benefit from their own work record, but their PIA is less than 50% of the higher earner’s, they receive their own benefit plus a spousal “top up” to equal 50% of the higher earner’s PIA, or less if claiming before full retirement age.
• If the lower earner’s PIA is more than 50% of the higher earner’s PIA, no spousal benefit is available.

The 1939 Social Security Amendments

In the 1939 Social Security Amendments, the “spousal” benefit was specifically titled and defined for wives only. An at-home wife and homemaker had no work history but contributed to the economic success of the household. Therefore, Congress determined she was entitled to a Social Security benefit, equal to 50% of the working husband’s PIA.

If a wife did have her own work history, she could receive as much as 50% of her husband’s PIA by combining her benefit with additional dollars to reach the proper value.

Spousal Benefit Examples

Fast forward to today. “Wives” in the law is now “lower-earning spouse.” But the concept is the same; lower-earning spouses receive a retirement benefit.

Here are typical points of confusion regarding spousal benefits:

Assumption: Tom plans to wait until 70 to claim maximum benefits. His lower-earning spouse, Pat, does not have 40 credits, so will get 50% of his maximum benefit payment.

Reality: Pat may get 50% of Tom’s PIA, but not 50% of his maximum benefit.

• Tom’s PIA is $3,000, his maximum benefit is $3,720.
• Pat’s dependent spousal benefit is $1,500 if claiming at full retirement age, not $1,860.

Assumption: As the lower-earning spouse, Sam thinks she will get her own benefit plus half of her spouse Chris’ benefit.

Reality: Sam will get a combined benefit if her own PIA is less than half of Chris’:

• Sam’s PIA = $900
• Chris’ PIA = $3,000

Sam’s maximum benefit at her full retirement age is $1,500: $900 on her work record + $600 spousal top-up. She does not get her $900 + $1,500 (half of Chris’).

Furthermore, Sam would get $0 in spousal benefits if her own PIA is greater than 50% of Chris’ PIA:

• Sam’s PIA = $2,000
• Chris’ PIA = $3,000

Sam’s payment will be the larger between a spousal benefit ($1,500) and her own benefit ($2,000). Thus, Sam will only receive her own benefit when she claims.

Sam can’t claim her spousal portion first, then claim her own. When she files, it’s for all eligible benefits.

There can be a timing issue when the top-up is available. Spousal benefits are a “subset” of a worker’s benefits. Until the worker claims, the spouse cannot receive spousal benefits but can receive their own.

A Spousal Benefit Is Simply a Consideration

Help clients understand the difference between “spousal” benefits and being a “spouse.” Connecting the dots about their various benefits can reduce confusion and frustration.

Many client couples today have a lower earner and a higher earner, but without enough difference to trigger a spousal benefit. With the restricted application doors just about closed, no one chooses between their retirement benefit options. And spousal benefits are always based on the higher earner’s PIA.

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