Optimizing Social Security Spousal Benefits

Managing your way through the Social Security system can be a very challenging maze and proper planning can sometimes increase the benefits to which you are entitled.  As the Social Security website states:  “Even if you have never worked under Social Security, you may be able to get spouse’s retirement benefits if you are at least 62 years of age and your spouse is receiving retirement or disability benefits.”  Note that you can also receive the spouse’s benefit no matter what your age is if you are caring for the spouse’s child who is also receiving benefits.  Based upon the way the Social Security system works, both spouses can request benefits based on their partner’s Social Security work record.  When you apply for Social Security benefits based upon your work record, the Social Security Administration considers you as filing for both your individual and your spousal benefits.  You are supposed to receive the higher of your own accumulated benefit or one-half (1/2) of your spouse’s benefit provided your spouse has already applied for Social Security.

If you begin receiving benefits between age 62, when you are first eligible, and the date which is your full retirement age, the amount you receive will permanently be reduced by a percentage based upon the number of months up to your full retirement age.  In addition, if you are under full retirement age and you continue to work while receiving benefits, your benefits may be affected by the retirement earnings test.  In other words, you will receive a reduction in your Social Security benefits for every dollar of wages over a set amount you continue to earn prior to your full retirement age.  Once you reach full retirement age (currently age 66 for people retiring), your benefit as a spouse cannot exceed the greater of your individual benefit or one-half (1/2) of your spouse’s full retirement amount.

There is an interesting planning technique that you can utilize if you were born before January 2, 1954 and have already reached full retirement age.  Under this technique called a restricted benefit election, you can choose to receive only your spousal benefit and delay receiving your individual benefit until a later date.  If your birthday is January 2, 1954 or later, you can no longer use this planning technique.

An example is helpful to understand how the restricted application may benefit you.  Assume John was born May 1, 1952, is still working and has not applied for Social Security benefits.  His full retirement age is 66, which he has achieved.  Let’s also assume Mary, his spouse, is retired from work and she was born June 1, 1952 and will reach full retirement age on July 1, 2018.  Let’s also assume John’s current Social Security benefit would be $2,700 per month and Mary’s current benefit is $1,000 per month.  Once Mary turns 66 on July 1, 2018, she can apply for Social Security benefits.  Since John is still working and has not applied for Social Security benefits, Mary will be entitled to a benefit of $1,000 per month based upon her earnings record.  However, once Mary applies for Social Security, John may make a restricted application to receive a spousal benefit based on Mary’s record.  Once John applies for the restricted benefit, he will be entitled to $500 per month on Mary’s Social Security record even though he has not applied for Social Security on his own record.  John and Mary will then receive $1,500 per month until John decides to apply for Social Security.  Currently, the Social Security benefit increases 8% per year once you obtain full retirement age until age 70.  Let’s assume John decides not to take his Social Security benefit for himself until he reaches age 70.  Once John reaches age 70, he can apply for his own Social Security benefit, which will be significantly higher than it was at age 66 due to the 8% compounding of the benefit per year.  On the other hand, Mary can then apply for John’s Social Security as a spouse and instead of receiving the $1,000 per month she was receiving, her benefit will then go up to one-half (1/2) of John’s benefit which should be in excess of $3,000 per month at that point in time.

Anyone making a restricted application should be very careful in filling out the application to make it clear that they are only applying for their spousal benefit and not their own benefit.  You should be very cautious when completing this paperwork because if the wrong boxes are checked, you may inadvertently apply for your own benefit instead of the restricted application for your spousal benefit and this is irreversible.

As the above explains, proper planning may significantly increase the amount of Social Security benefits spouses can receive in the right circumstances.  As mentioned above, the restricted application technique only works if you are born before January 2, 1954.  So if you were born after this date, this technique can no longer be utilized.

Needless to say, the Social Security rules are very complex and anyone reaching the age where they wish to examine the possibility of applying for their own or spousal benefits would be wise to see a consultant who specializes in Social Security to assist them. They should also consider visiting a Social Security office to explore options in detail.  Congress is known for changing these rules at various times so be careful to check the current rules before making any Social Security applications or changes.

If you have any questions regarding this article, please contact its author, Bob Zimmerman, at 715-845-8234 or rzimmerman@mzattys.com.