As you approach retirement, one of the most crucial decisions you’ll make is how to maximize your Social Security benefits. For those who are married or were married for at least 10 years, the spousal benefit can be a significant part of your retirement income strategy. Understanding how this benefit works and how to optimize it can make a substantial difference in your financial security during retirement.
Let’s explore the essentials of the Social Security spousal benefit and provide you with five key strategies to ensure you’re maximizing this important source of retirement income.
Understanding the Basics of Social Security Spousal Benefits
Before diving into the strategies, it’s important to have a clear understanding of what the Social Security spousal benefit entails. In simple terms, you’re eligible for either your own Social Security benefit, based on your earnings record, or a spousal benefit, which is based on your spouse’s earnings record. If you qualify for both, you will receive the higher of the two benefits.
Here are the key points to remember about spousal benefits:
- Eligibility: To qualify for a spousal benefit, you must have been married for at least one year. If you’re divorced, you may still be eligible for spousal benefits based on your ex-spouse’s earnings record, provided the marriage lasted at least 10 years.
- Benefit Amount: The maximum spousal benefit is 50% of your spouse’s primary insurance amount (PIA), which is the benefit they would receive at their full retirement age (FRA). This benefit is not eligible for delayed retirement credits, meaning it does not increase if your spouse delays taking their benefits beyond their FRA.
- Spousal Benefit Calculation: If your own Social Security benefit based on your earnings record is less than half of your spouse’s PIA, you will receive your benefit plus an excess spousal benefit, which together will equal 50% of your spouse’s PIA.
Strategy #1: Determine if a Spousal Benefit is Right for You
The first step in maximizing your Social Security benefits is to determine whether claiming a spousal benefit is the right choice for you. This involves comparing your own Social Security benefit (based on your earnings record) with the spousal benefit (50% of your spouse’s PIA). If your benefit is higher, you’ll want to claim your own; if not, the spousal benefit may be the better option.
Strategy #2: Wait Until Full Retirement Age for Maximum Benefits
To receive the maximum spousal benefit, you need to wait until your full retirement age (FRA) to begin collecting. Your FRA is determined by the year you were born, and for most people approaching retirement today, it falls between ages 66 and 67. If you begin collecting your spousal benefit before reaching your FRA, your benefit will be permanently reduced.
Strategy #3: Your Spouse Must Be Collecting Their Own Benefits
You cannot begin collecting a spousal benefit until your spouse has filed for their own Social Security benefits. This is an essential rule that many people overlook. If your spouse chooses to delay their benefits beyond their FRA to take advantage of delayed retirement credits, you must wait to start your spousal benefit.
In the past, there was a strategy called “file and suspend,” where a spouse could file for benefits but then suspend them, allowing the other spouse to begin collecting a spousal benefit. However, this option was eliminated in 2016, so now both spouses must be collecting their benefits for you to receive a spousal benefit.
Strategy #4: Understand the Interaction Between Your Own Benefit and the Spousal Benefit
A common misconception is that you’re either collecting your own benefit or half of your spouse’s benefit. In reality, if you have your own Social Security benefit, you’ll receive that benefit first, and then an “excess spousal” benefit will be added to bring you up to the 50% threshold of your spouse’s PIA.
For example, if your spouse’s PIA is $2,000 and your own benefit at FRA is $600, your total spousal benefit would be $1,000 (which is 50% of $2,000). You’d receive your $600 benefit plus an additional $400 in excess spousal benefit.
This nuance is crucial, especially if one spouse plans to delay their benefits until age 70. In this case, you could start collecting your own benefit at your FRA and later add the spousal benefit once your spouse begins collecting at age 70.
Strategy #5: Maximize the Impact, Not Just the Income
Finally, while it’s important to maximize your Social Security income, it’s even more important to consider how that income fits into your overall retirement plan. Your goal should be to optimize the impact of Social Security on your retirement strategy, which may involve coordinating the timing of benefits between spouses and considering other sources of income.
For instance, survivor benefits work differently from spousal benefits and can be more valuable in certain situations. Unlike spousal benefits, survivor benefits do include delayed retirement credits. If your spouse delays their benefits until age 70 and then passes away, you could be eligible to receive their higher benefit amount, including those credits.
However, survivor benefits are reduced if you begin collecting before your FRA. Therefore, it’s essential to carefully plan the timing of these benefits to maximize the overall financial impact.
A Strategic Approach to Social Security Spousal Benefits
Maximizing your Social Security spousal benefit requires a thoughtful and strategic approach. By understanding the basics of how these benefits work and applying the five strategies outlined above, you can make informed decisions that will help secure your financial future.
- Determine whether the spousal benefit is right for you.
- Wait until your full retirement age to collect for maximum benefits.
- Ensure your spouse is collecting their benefits before you file for spousal benefits.
- Understand how your own benefit interacts with the spousal benefit.
- Maximize the impact of Social Security in your retirement plan.
By taking these steps, you can ensure that you’re not leaving money on the table and are fully leveraging your Social Security benefits to support a comfortable and secure retirement.