ON THE SURFACE, Social Security seems straightforward: During our working years, we pay into the system. Then, when we’re older, the government sends a check every month for life.
But scratch the surface and you’ll find that Social Security offers a number of additional benefits. Among them: a benefit for spouses. This can be highly valuable, but the rules around it are complex and very specific. Consider, for example, the late talk show host Johnny Carson.
Carson was married four times. First, he married Jody Wolcott. They were together for about 15 years. Then he married Joanne Copeland. That marriage lasted nine years. Next came Joanna Holland. They also were married about 15 years. Finally, Carson married Alexis Maas. They had been married 18 years when Carson died in 2005.
Because of the spousal benefit rules, two of Carson’s wives received partial benefits, one received a substantial benefit and one received no benefit at all. To be sure, Carson’s case was unusual. But if you’re married, divorced or widowed, it’s important to understand how spousal benefits work.
By way of background, the original intention of the spousal benefit was to protect stay-at-home spouses. Here’s why: For a worker to be eligible for Social Security, he or she needs to have accumulated at least 40 quarters—totaling 10 years—of work history. But many stay-at-home spouses don’t have 40 quarters. The spousal benefit was designed to ensure they’d receive at least some benefit, regardless of work history. Here are 10 additional points about spousal benefits:
1. Newlyweds aren’t eligible. To claim a spousal benefit, you need to have been married for at least a year.
2. In very general terms, the spousal benefit is equal to half of the higher earning spouse’s benefit. To illustrate, consider the couple Tom and Jane. If Tom is entitled to $2,000 per month, Jane would be entitled to $1,000. It’s more involved than that, as I’ll explain below, but that’s the general idea.
3. More specifically, the spousal benefit is calculated as 50% of the higher-earning spouse’s primary insurance amount (PIA). The PIA, in turn, represents the amount you’re entitled to at your full Social Security retirement age (FRA), which is between age 65 and 67, depending on the year you were born. For that reason, the spousal benefit doesn’t always equal 50% of the actual benefit the higher-income spouse is receiving. For example, if the higher-income spouse waits until age 70 to claim benefits, the spousal benefit wouldn’t be half of that very robust number. It could be as much as 25% lower.
4. The spousal benefit can only help. In the above example, Tom and Jane would collect a combined $3,000. In other words, one benefit is not deducted from the other.
5. The spousal benefit is an option, but certainly not mandatory. Let’s look at Jane and Tom again. Jane is entitled to $1,000 as a spousal benefit. But should she take it? In the simplest case, if Jane had no earnings record of her own, she would of course claim that $1,000 benefit.
But suppose Jane was entitled to a benefit on her own record. In that case, she still might choose the spousal benefit—but it would be a choice. To decide, she would simply weigh her own benefit against the prospective spousal benefit. Suppose Jane’s own benefit was $750 per month. In that case, the spousal benefit of $1,000 would still be the better way to go.
Now, imagine that Jane’s benefit, based on her own earnings record, was more than $1,000. In that situation, she’d want to stick with her own benefit. In fact, if she had earned significantly more than Tom, it might be Tom who’d collect the spousal benefit based on Jane’s work history. In short, the spousal benefit is just an option, provided only as a floor but not as a ceiling.
6. To claim a spousal benefit, your spouse must have already claimed his or her own benefit. In the above example, if Jane were going to choose the spousal option, she would need to wait until Tom had started his benefit. On the other hand, if they were each going to claim their own benefit based on their own earnings history, they could choose independently when to start.
7. The timing of spousal benefits should be coordinated carefully. As you probably know, there’s a benefit to delaying Social Security benefits. While you can claim as early as age 62, you can maximize your benefit if you wait until 70. With spousal benefits, it’s similar, but more restrictive. You can still claim as early as 62—provided your spouse has already started benefits, as noted above.
But the penalty for claiming a spousal benefit prior to FRA is steeper than the penalty for claiming your own benefit early. For example, if you claim your own benefit three years prior to FRA, your benefit would be reduced by 20%. But if you claim your spousal benefit three years prior to FRA, that benefit would be reduced by 25%.
At the same time, you definitely don’t want to wait until 70. That’s because spousal benefits hit a maximum when you reach your full Social Security retirement age and don’t grow any further. Bottom line: Ideally, you would claim your spousal benefit right at your FRA.
8. In 2015, Congress overhauled the spousal benefit rules to close a loophole known as the “restricted application.” If you were born before Jan. 2, 1954, you’re grandfathered in. But for everyone else, it’s now a pothole to be aware of.
Consider the couple Michael and Susan. Michael is two years older than Susan. They both have strong earnings records, so they’re both planning to wait until age 70 to claim their own benefits, which will be $4,000 for each at that time. Under the old rules, Michael and Susan could coordinate: He could start his $4,000 benefit at age 70. At the same time, Susan, at 68, could claim the spousal benefit, which would be about $1,500. She could collect that amount for two years, until turning age 70. Then she could switch over to her own $4,000 benefit. In other words, Susan could collect a check, albeit smaller, for two years while her own benefit keeps growing.
Unfortunately, because this was such a generous policy, Congress eliminated it. If you happen to fit in that narrow band of folks still eligible, be sure to look into it. On the other hand, if you were born after Jan. 1, 1954, you may want to do the opposite and avoid filing for spousal benefits in a situation like this. Under the new rules, that could inadvertently, and permanently, reduce your own benefit.
9. There’s one other exception to the new restricted application rule. If you’re widowed, you’re allowed to employ the restricted application strategy, even if you were born after Jan. 1, 1954.
10. If you’re divorced, the rules and benefits are similar to what they would have been if you were still married. But there are some differences. Most important, if you want to claim a spousal benefit based on your ex-spouse’s record, you need to have been married for 10 years. That’s why Johnny Carson’s second wife, to whom he was married for just nine years, received no benefit at all. Also, divorced spouses aren’t subject to the restriction described in No. 6 above. Social Security recognizes that former spouses may not necessarily coordinate benefits, so it doesn’t make them dependent on each other.
These are just the most basic points about spousal benefits. While Social Security does offer a “do over” option, this is definitely an area where—as the saying goes—you want to measure twice and cut once.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm.