Benefit options for couples include the normal age based choices as well as choices that will maximize benefits for both individuals. Delaying either of your individual payments will allow payments to be made while still building monthly benefits. Each member of the couple is free to file for benefits as they desire, but if you want to maximize your benefit and maximize survivor benefits you will need to look at other options that both individuals need to consider.
As with anyone, you and your spouse can file for benefits any time after age 62. You and your spouse’s monthly benefit amounts will be based on each of your full retirement age (FRA) benefits and the ages at which you begin to receive benefits. You both need to take into consideration your health, family medical histories, and financial stability when making your decision. If you have a financial advisor you may want to seek their advice before making your decision.
Social Security provides a nice foundation for your retirement income, but most people will need to combine it with other retirement incomes to lead the lifestyle they desire. It is a lifetime benefit that provides benefit payments not only for your lifetime but also that of your spouse. Once you file your applications your options are limited on what you can do to change your decisions. For more information on this subject see “Do Over Provision” later in this guide.
The reductions for receiving early benefits are similar to the individual reductions discussed in the previous section. The big difference comes in the administration of spousal benefits. To keep things consistent, I will cover all couples’ scenarios from the beginning.
If you and/or your spouse elect to begin receiving Social Security benefits within 36 months of FRA the monthly payment will be reduced 5/9 of 1% (0.56%) for each of those months. This number is known as the reduction factor. If you and/or your spouse elect to begin receiving Social Security benefits when there are more than 36 months before FRA the monthly payment will be reduced 20% for the first 36 months plus 5/9 of 1% (0.56%) for each month in excess of 36.
There is an easy way to calculate how reduction factors will affect your monthly benefits. You can use a formula that allows you to enter reductions in terms of months (as opposed to the percentages) to simplify the formula. Let me show you how this works.
If the reduction factor (number of months prior to FRA) is 1 through 36, subtract 180 by the reduction factor and then multiply it by the FRA benefit amount. Then divide that total by 180. This will equal your monthly benefit amount.
Example: 36 months or less before FRA
Say your FRA is age 66 and your benefit is $1500 and you begin to receive Social Security benefits at age 63. The reduction factor (number of months prior to FRA) is then 36. To calculate your monthly benefit, you would use the formula below:
180 – 36 = 144
144 x $1500 = 216000
216000 / 180 = $1200
Your monthly benefit at age 63 would be $1200.
If the reduction factor (number of months prior to FRA) is more than 36 your Social Security benefits will be determined using a different formula. Subtract 192 by the number of months in excess of 36 and multiply it times the FRA benefit amount. Then divide that total by 240. This will equal your monthly benefit amount.
Example: 37 months or more before FRA
If your FRA is age 66 and your benefit is $1500 and you begin to receive Social Security benefits at age 62, your reduction factor will be 47 (see the note below). To calculate your monthly benefit, you would use the formula below:
192 – 11 = 181
181 x $1500 = 271500
271500 divided by 240 = $1131
Your monthly benefit at age 62 would be $1131.
Note – Benefits are not payable for any month before you are age 62 for the entire month.
Spousal Benefits
If your spouse is alive and receiving Social Security retirement benefits, you may be eligible to receive a spousal benefit, even if you do not have enough work credits of your own. Eligibility begins at age 62. The maximum spousal benefit is 50% of what your husband or wife receives.
In cases where you have both worked, it is possible to make a claim for your own benefits and claim the greater of your own benefit or the spousal benefit. This should be carefully planned to maximize the overall benefit to the spouse.
If either you or your spouse is eligible to receive spousal benefits you can begin to receive those benefits as early as age 62. As with receiving benefits on your own work record before FRA, the benefits will be reduced for age. The reduction for each of the first 36 months of reduction is 25/36 of 1%. The reduction for each month greater than 36 is 5/12 of 1%. The reduction amount is based solely on the number of months involved.
Reduced spousal benefits (prior to FRA) are computed as follows:
If the number of reduction months is 1 through 36 you subtract the number of reduction months from 144 and multiply that figure by the original benefit. Divide that figure by 144 to determine the monthly benefit amount.
Example: 36 months or less before FRA
If your FRA is age 66 and your benefit is $500 and your spouse’s FRA benefit is $2000 and you begin to receive Social Security benefits at age 63, your reduction factor (number of months prior to FRA) will be 36. To calculate your monthly benefit, you would use the formulas below:
Your Own Benefit:
180 – 36 = 144
144 x $500 = 72000
72000 divided by 180 = $400
Your Spousal Benefit:
$2000 divided by 2 = $1000
$1000 – $500 = $500
144 – 36 = 108
108 x $500 = 54000
54000 divided by 144 = $375
$400 + $375 = $775
Your monthly benefit at age 63 would be $775.
Example: 37 months or more before FRA
If the number of reduction months prior to FRA is 37 through 60 you subtract the number of reduction months in excess of 36 from 180 and multiply that figure by the original benefit. Divide that figure by 240 to determine the monthly benefit amount.
If your FRA is age 66 and your benefit is $500 and your spouse’s FRA benefit is $2000 and you begin to receive Social Security benefits at age 62, your reduction factor (number of months prior to FRA) will be 47 (see the note below). To calculate your monthly benefit, you would use the formulas below:
Your Own Benefit:
192 – 11 = 181
181 x $500 = 90500
90500 divided by 240 = $377
Your Spousal Benefit:
$2000 divided by 2 = $1000
$1000 – $500 = $500
47 – 36 = 11
180 – 11 = 169
169 x $500 = 84500
84500 divided by 240 = $352
$377 + $352 = $729
Your monthly benefit at age 62 would be $729.
*All monthly benefit amounts are rounded down to the next dime.
The original benefit is equal to ½ of your spouse’s FRA benefit. If you are also entitled to benefits from your own work record, the original benefit is equal to ½ of your spouse’s FRA benefit minus your FRA benefit.
Basic Options Available to Couples:
Receive Benefits at Age 62 (either individual or both)
Receive Benefits at FRA (currently age 66) (either individual or both)
Receive Benefits at Age 70 (either individual or both)
Additional Strategies:
File and Suspend
The availability of this option was eliminated with the Bi-Partisan Budget Act – Section 831 signed into law on November 2, 2015. To take advantage of this strategy you must have attained age 62 in 2015 or earlier.
With “File and Suspend” the higher lifetime wage earner applies for benefits at FRA, but then immediately suspends the benefit payments. What this does is establish the amount that the lower wage earning spouse can receive in spousal benefits. So it creates an opportunity to claim spousal benefits while at the same time allowing the higher wage earner’s own benefits to continue increasing in value until they reach age 70. You cannot suspend your benefits prior to your full retirement age.
Restricted Application
The availability of this option was eliminated with the Bi-Partisan Budget Act – Section 831 signed into law on November 2, 2015. To take advantage of this strategy you must have attained age 62 in 2015 or earlier.
A “Restricted Application” is also valuable for increasing lifetime benefits in situations where both spouses have a good wage record and one wants to either continue to work after FRA or delay benefits on their own work record to earn delayed retirement credits. Here, the working spouse applies for spousal benefits on the other’s record. This allows him or her to receive spousal benefits while continuing to work and increase their own benefit until age 70.
The spouse files a “restricted application” for spousal benefits only. When the spouse chooses to retire or file on their own work record, they begin to draw their own higher benefit (which will have fully matured). As a bonus, the spouse who retired first may get a higher survivor benefit in the future, if that happens. You cannot file a restricted application prior to your full retirement age.
Spousal Benefits Reductions and Credits
If you take benefits at age 62 your benefit will be reduced from your FRA benefit. Earnings in excess of $17,640 before your FRA will also affect you and your spouse’s monthly benefits. Social Security will deduct $1 in benefits for every $2 you earn over $17,640. These figures increase in the year you reach FRA to $46,920 for only those months before the month you reach FRA and $1 of benefits are deducted for every $3 you go over the $46,920.
If you delay your own benefits past FRA you will receive a 2/3rds of 1% for each month you delay benefits which equals 8% per year. If your full retirement age is 66, you will receive a 32% increase in monthly benefits over FRA if you wait until age 70.
Examples
These are some examples of how certain application options can affect what you and your spouse might receive over your lifetimes in Social Security benefits. The following assumptions were made:
Husband
Date of Birth: 08/28/1953
FRA Benefit: $2090
Expected Death Age: 84.05 years
Wife
Date of Birth: 05/29/1953
FRA Benefit $1387
Expected Death Age: 86.08
*No cost of living increases were included in the options that follow.
Option 1:
Wife files for own benefit May 2019 at FRA ($1,387).
Husband files a ‘restricted application’ for spousal benefit August 2019 at FRA ($693).
Husband files for own benefit August 2023 at Age 70 ($2758).
Husband receives $510,398 | Wife receives $376,880
Total Lifetime benefits $887,278
Option 2:
Husband files for own benefit August 2019 at FRA ($2,090).
Wife files “restricted application” for spousal benefit August 2019 at Age 66, 3 Months ($1,045).
Wife files for own benefit May 2023 at Age 70 ($1,830).
Husband receives $461.890 | Wife receives $422,400
Total Lifetime benefits $884,290
Option 3:
Wife files for own benefit May 2023 at Age 70 ($1830)
Husband files “restricted application” for spousal benefit May 2023 at age 69, 9 months ($693).
Husband files for own benefit August 2023 at Age 70 ($2758).
Husband receives $479,213 | Wife receives $388,272
Total Lifetime benefits $867,485
Option 4:
Wife files own benefit May 2019 at FRA ($1387).
Husband files own benefit August 2019 at FRA ($2090).
Husband receives $461,890 | Wife receives $360,848
Total Lifetime benefits $822,738
Note: In all options, the wife’s benefit converts to widows benefits which equal the husband’s benefit at the time of his death.
The bottom line is the longer you delay taking benefits the more money you will receive over the long term. However, this does not mean you and your spouse both have to wait until age 70 to significantly expand the value of your lifetime benefits. Using “restricted applications” can create a number of opportunities for your household to receive benefits at age 66, while at the same time growing your primary benefits and widow/widower benefits for the future.