Lynn Brenner's Family Finance

What Determines My Spousal Social Security Benefit?

Q: Will my benefit as a spouse be smaller because my wife took Social Security early? She started receiving Social Security when she turned 62. I don't plan to claim my spousal benefit until I'm 66, which is my full retirement age. Will I get 50% of my wife's reduced benefit, or will I qualify for 50% of her full retirement benefit?--FM

 

A: Your spousal benefit isn't reduced because your wife applied for Social Security early. If you apply for it when you're 66, you'll receive 50% of her full retirement benefit.

Her age when she filed for Social Security is irrelevant. Your spousal benefit is based on how old you are when you apply for it. Apply at 66, and you get 50% of her full benefit. If you apply when you're 62, you only get 35% of her full benefit.

Her full benefit is what's known in Social Security jargon as her Primary Insurance Amount, or PIA. It's the amount she would currently be receiving if she had started Social Security at her full retirement age.

Your spousal benefit is always a percentage of your husband or wife's PIA, no matter how early or late he or she started collecting Social Security says Linda Lauria, a Social Security Administration spokeswoman in New York City. 

Take that hypothetical couple, Dan and Rosanne. Let's say Rosanne's PIA -- the amount she'd receive at age 66 -- is $1,000 a month. But she retires at 62, so she gets 25% less. Her reduced benefit: a monthly check for $750. 

For the next four years, Social Security benefits get a 3% annual cost of living increase. Thanks to these four inflation adjustments, Rosanne's $750 monthly check has grown to $844.16

Her husband Dan, now 66 years old, decides to postpone taking his own benefit. He restricts his Social Security application to his spousal benefit. (See my previous post.)

Since he has reached full retirement age, his spousal benefit is 50% of Rosanne's PIA. Her PIA -- the amount she'd be getting had she retired at 66, remember -- is now $1,125.50, thanks to those four years of inflation adjustments. Dan's spousal benefit is therefore 50% of $1,125.50, or $562.75 a month.

But what if Rosanne had made a different decision and retired after her full retirement age? In that case, her monthly benefit would be boosted by Delayed Retirement Credits -- an extra 8% credit for each year she delayed taking it between age 66 and age 70. 

Again, let's assume four years of 3% annual inflation adjustments, which boost her PIA to $1,125.50 a month. The four years of Delayed Retirement Credits are worth an extra $320 a month. The upshot:  when Rosanne starts collecting Social Security at 70, she'll get a monthly check for $1,445.50.

But Dan's spousal benefit isn't bigger because she postponed her own Social Security application. At 66, he'll still $562.75 a month -- 50% of her $1,125.50 inflation-adjusted PIA.

However, his widower's benefit will be bigger if Rosanne predeceases him. As a surviving spouse, he'll be entitled to 100% of whatever amount she was collecting, which includes her Delayed Retirement Credits.

Please send your questions to Lynn@LynnBrennersFamilyFinance.com.  I'm sorry I can't respond personally to every email. Questions are only addressed online.

 

When can I apply for a Spousal Social Security Benefit?

Q: I just turned 65, am still working, have no plans to retire, and make a significant income. My wife is 62 years and 4 months old, doesn't work, and has no plans to work. Is there a strategy whereby it would make sense for her to begin Social Security benefits now? Would it make sense for me to claim a spousal benefit when I turn 66 in one year (or will all of that be taxed away?) and then claim my own benefit at age 70? --AM

 

A: Your question about taxes is rhetorical, right? Without a good deal more information -- starting with the amount of your 'significant' income -- I can't hazard a guess about the tax treatment of any Social Security benefit you may receive.

And I assume that your wife at some point in her life did work and pay Social Security payroll taxes for at least ten years. If not, there is no spousal benefit you can claim based on her earnings record because as far as Social Security is concerned she has no earnings record.

If she does have Social Security earnings record, you can't apply for a spousal benefit based on that record until she has applied for her own benefit. Similarly, she cannot apply for a spousal benefit based on your record until you have filed for Social Security yourself.

However, as I've explained in previous posts, after you turn 66 you could greenlight her application and at the same time effectively postpone your own until you're 70,with a strategy called 'file and suspend.'

With 'file and suspend', you file for your benefit so that she can apply for her spousal benefit; and then immediately suspend your application so that you can delay taking your benefit until you're 70. 

If your wife has earned her own Social Security benefit, she should call the Social Security Administration  (or go to www.ssa.gov) and find out the amount she would receive if she applies for it now, versus when she's older, in order to make a decision about when to apply for it. 

Please send your questions to Lynn@LynnBrennersFamilyFinance.com.  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved

 

 

Can You Make Too Much to Qualify for Social Security?

Q: My sister's husband just passed away at age 86. She's still working. She went to Social Security to see if she can get his benefit. They told her no, because she makes too much money. Doesn't sound right to me. Do you have any input to this? --CC via email

 

A: Any delay in your sister's eligibility to collect a widow's benefit is temporary.

You've left out the most important piece of information -- her age. If she's younger than full retirement age, the benefit she collects is reduced if she earns an amount over an annual cap.

Assuming she was born between 1943 and 1954, her full retirement age is 66. If she's younger, under current rules she forfeits $1 of benefit for each $2 she earns above $14,160 per year. If her salary were $44,160, for example, she'd be earning $30,000 above the limit and $15,000 would be subtracted from her annual benefit.   

But this benefit reduction isn't a permanent loss. When she turned 66, her benefit amount would be increased to account for the amount withheld because of her excess earnings when she was younger.

After she reaches her full retirement age, she can collect her full benefit amount regardless of her annual salary.

Please send your questions to Lynn@LynnBrennersFamilyFinance.com.  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved.

 

 

 

 

Fred and Ethel and Francine: A Social Security Story

Q: A man and woman, married, are retired, both collecting Social Security retirement benefits. She dies, and he begins collecting on her Social Security, which is higher. Eight years later, the man meets a new woman. 

Evaluating the good and bad of getting married: Will the new woman, as the widowed man’s new spouse, be able to collect on his current Social Security benefit at his death (which is a survivor benefit from the first wife)? Or will the new woman as the widowed man’s new spouse be required to collect on his own Social Security?

Assume the new woman/wife has a smaller SS benefit on her own record than the widowed husband’s benefit on his own record, and less than his current survivor benefit from his deceased wife. --PB via email

 A:  For goodness sake, let's give these people names!!

Fred and Ethel are a retired couple, both collecting Social Security. Ethel dies, and Fred later meets Francine. Okay?

You haven’t given me any of their ages. That’s a huge omission, since age is a crucial factor in answering any question about Social Security.

I’m going to assume they all started collecting Social Security at their full retirement ages. Bear in mind that if they'd filed for benefits earlier, it would affect all the numbers. Also, please remember that all the benefit amounts I cite in this story are steadily adjusted for inflation as the years go by. I’m just sticking with the original numbers for simplicity’s sake.

Okay, here goes.

After Ethel's death, you stipulate that Fred begins collecting her Social Security, 'which is higher' than his own. The benefit based on your own work record is called your PIA (or ‘primary insurance amount’). Let's say Fred’s PIA was $1,800 a month and Ethel's PIA was $2,000 a month. His widower's benefit is the higher of the two amounts: $2,000 a month. (From the government's viewpoint, $1,800 of this widower’s benefit  comes from his PIA and $200 from Ethel’s PIA.)

Eight years later, Fred meets Francine, whose Social Security benefit is $400 a month.

Fred and Francine weigh the pros and cons of marrying, including (but let’s hope not exclusively) how tying the knot would affect their respective Social Security benefits.

Since Fred is remarrying when he’s over 60, he won’t lose his $2,000 widower’s benefit.

What's more, after they’ve been married for nine months, Francine can collect a spousal benefit based on Fred’s PIA. (In case you've forgotten, that's $1,800 a month.) She gets the larger of two amounts: her own PIA or 50% of Fred's PIA. Since her PIA is only $400 a month, she’ll now receive $900.

So they get married. Fred’s still collecting $2,000 a month ($1,800 of his PIA plus $200 of the late Ethel’s PIA) and soon Francine’s collecting $900 a month ($400 of her own PIA plus $500 of Fred’s PIA.) 

Then Fred dies, leaving Francine eligible to collect as his widow.

As a widow, Francine is eligible to collect 100% of Fred’s PIA ($1,800 a month). And the answer to your question is ... (drumroll, please):

No, as a widow, Francine cannot collect the late Fred’s $2,000 survivor benefit from his marriage to Ethel. That benefit is only available to Ethel's surviving spouse.

Please send your questions to Lynn@LynnBrennersFamilyFinance.com.  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved.