Page 18 - Investment Advisor June 2022

RETIREMENT PLANNING

By Marcia Mantell and Michael Fischer

How Social Security Spousal Benefits

Really Work: A Case Study

Also, a Schwab study defines the four types of millennial retirees.

“ ey Marcia,” began a call from

“Barb.” “Last night I had din-
Hner 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 ben-
efit 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 she will be eligible for a full spousal half of his PIA. The SSA will determine
32% increase in monthly benefits. Barb benefit at her own FRA. The maximum her highest calculated benefit: her own
was born January 1956. Her FRA is 66 spousal benefit is 50% of the higher benefit or a combination of her benefit
years and 4 months, and she’ll reach earner’s primary insurance amount — plus a spousal top-up.
FRA May 2022. not the amount that spouse is collecting. Let’s assume her own PIA is $1,800
Knowing just those two pieces of In Barb’s case, she is independently and she claims at FRA. The comparison:
information, have you already connect- eligible for her own benefit. But is it • Based on her own worker record,
ed the dots where big sister had good higher than 50% of Tom’s PIA? she’d get $1,800; or
intentions but was incorrect? • If yes, she will not receive any spou- • For a spousal benefit, her calculated
sal benefits at all. When she claims, benefit is 50% x $2,600 = $1,300.
TECHNICAL RULES ALWAYS APPLY she’ll get her own worker’s benefit. In this situation, she’ll only receive
Married or eligible divorced persons may • If no, she is entitled to a spousal her own benefit. Her wages were high
qualify for spousal benefits. However, benefit “top-up.” Her own benefit enough to create a Social Security ben-
they cannot split their benefits and will get paid first, then any addi- efit that’s more than half his PIA.
choose to take spousal benefit first. tional top-up is added on. This way, Now, let’s say her own worker PIA =
(Exception: If the higher earner has not she would receive an amount equal $1,000. Her calculated spousal benefit
yet claimed benefits, there will be a gap in to 50% of Tom’s PIA (if she claims at is still $1,300. When she claims, she’s
timing, but not a separation of benefits.) her own FRA). Under the hood, her deemed to claim both benefits: her own
Therefore, Barb cannot collect spou- benefit tabulated from both sides plus her spousal top-up. Again, she can-
sal benefits first, then claim her own needs to be considered. not split the benefits — they come joined
later. That is a “restricted application” together in one single payment.
strategy, and it closed to those born after INSIDE THE NUMBERS When Barb claims at FRA, she’ll
Jan. 1, 1954. Let’s assume Tom’s PIA was $2,600 a technically receive her own $1,000 plus
month. He waited to claim until age 70, a $300 spousal top-up. Because Tom
CLAIMING OPTIONS so he’s receiving around $3,600 a month, already is claiming, once she files, she’ll
If Barb is a dependent spouse, she has including cost-of-living adjustments. simultaneously get both pieces to her Adobe Stock
not earned her own 40 credits. Instead, Barb’s own benefit will be compared to benefit package.

16 INVESTMENT ADVISOR JUNE 2022 | ThinkAdvisor.com