How Are Spousal Benefits Calculated for Social Security?

My Comments: As with most Social Security calculations, this one is also prone to misinterpretation and mistakes made. My wife and I are an example.

I claimed at my FRA (full retirement age) but my wife, 4 years younger, did not. We’re not sure why that happened but for whatever reason, she elected to file at age 65. Even if I fully understood the implications then, I’m unsure if we would have done it differently.

The net effect was to permanently reduce her benefits, even though we didn’t really need the money at the time. Now we are several years down the road and it would help to have that extra $400 per month coming in to offset our higher medical expenses.

If you are near retirement and this is an issue you are thinking about, please read these words from Clair Boyte-White to make sure you understand the long term implications.

by Clair Boyte-White \ Updated Jan 4, 2019

A key factor is the age of both the beneficiary and the spouse

The size of your Social Security spousal benefit depends on a number of factors, including your age, the maximum amount of your spouse’s benefit and whether other benefits are available to you. The maximum amount you can claim is 50% of your spouse’s full benefit.

Full Retirement Age

One of the most important factors in calculating spousal benefits is the age of both the beneficiary and the spouse. The maximum spousal benefit amount is dictated by the maximum benefit amount due to the beneficiary. If your claiming spouse is eligible to receive $1,000 per month at full retirement age, for example, your spousal benefit cannot be more than $500 per month.

Claiming Early or Late

If you have reached your own full retirement age, you may be eligible to claim the maximum spousal benefit. Full retirement age varies from 65 to 67, depending on your year of birth. For those born after 1960, full retirement age is 67.

You may claim Social Security spousal benefits as early as 62, but the amount of your benefit is permanently reduced according to the number of months left until you reach full retirement age. For example, if your full retirement age is 67 and you choose to claim spousal benefits at 62, the maximum benefit you are eligible to receive is equal to 32.5% of your spouse’s full benefit amount. This amount increases with each year, up to the maximum 50% benefit at age 67.

While you can increase the amount of your own primary benefit by delaying filing (up until the age of 70), you cannot claim spousal benefits that exceed 50% of your filing spouse’s maximum benefits. So, while you can claim a reduced spousal benefit by filing early, there is no incentive to file late.

Availability of Other Benefits

If you have never paid Social Security tax, claiming spousal benefits may be your only source of retirement income. However, if you are eligible to receive payments from a government pension or foreign employer not covered by Social Security, you may still be able to receive spousal benefits at a reduced rate.

In the case of government pensions received for jobs for which Social Security taxes are not withheld, the amount of your spousal benefits is reduced by two-thirds of the amount of your pension. Assume you are eligible to receive $800 in Social Security spousal benefits and $300 from a government pension each month. Your Social Security payment is reduced by 2/3 * $300, or $200, making your total benefit amount from all sources $900 per month, or ($800 – $200) + $300.

File and Suspend

Prior to 2016, taxpayers could file for benefits (making their partners eligible to claim spousal benefits) and then suspend their own payments in order to maximize deferred filing credits. This so-called ‘file-and-suspend’ strategy meant that a lower-income partner could take advantage of spousal benefits while the primary earner accrued delayed retirement credits, thereby increasing their benefit amount.

However, this sort of ‘have your cake and eat it, too’ loophole was closed with the Bipartisan Budget Act of 2015, which took effect in April of 2016.

While it is still possible to file for benefits and then suspend payments temporarily, any other benefits that would normally be available on your account (such as spousal benefits) are no longer payable during such suspensions.

Deemed Filing

The 2015 law also prevents taxpayers from double-dipping by claiming spousal benefits while accruing delayed retirement credits on their own accounts.

Previously, it was possible for those eligible for both types of benefits to claim spousal benefits first, while delaying a claim on their own account, sometimes called a ‘restricted application’. This allowed taxpayers to benefit from the earlier spousal payment while maximizing their own benefits through delayed retirement.

Under the revised law, you are ‘deemed’ to have filed for any and all benefits for which you are eligible as soon as you file for any of them. The payments you receive are based on whichever benefit amount is highest.

[Note that this restricted application is still available to a very limited number of spouses: those born before Jan. 2, 1954 who have already reached full retirement age for their birth year. “Deemed” filing does not apply to this group.]