How to Create the Optimal Social Security Spousal Benefits Strategy

Spousal Social Security Claiming Strategies

At some point we will all have to make the decision on when to claim Social Security, and it’s a big one. The program forms the bedrock to a safe retirement income plan and getting it right can be the difference in tens of thousands of dollars compounded out over the rest of your life. But it’s a complicated system and even more so when you realize that your spouse’s earnings and decision on when to claim can impact yours!

Here’s everything you need to know to find the optimal Social Security spousal benefits strategy, even when your personal circumstances aren’t necessarily straightforward.

The Basics

A spousal benefit is based on the earnings record of your spouse (or a former spouse if you’re divorced from a marriage that lasted at least ten years). The maximum benefit is limited to just 50% of your spouse’s Primary Insurance Amount. With very little exception, the Social Security Administration will only pay you the higher of your own retirement benefit or the spousal benefit. You can’t take both!

Moreover, you cannot take a spousal benefit until your spouse has started their benefit! This can create a few wrinkles to your planning if the lower earning spouse is also the older half of the couple. However, this rule disappears in the case of divorced spouses. You can claim the spousal benefit as soon as you’re eligible irrespective of any claiming decisions a former spouse makes.

Spousal social security benefits entitlement and eligibility rules

Both Claim Early

You must reach your Full Retirement Age (FRA) in order to get your full retirement benefit. This is somewhere between age 66 and age 67 depending on your date of birth. You receive a reduction in benefits if you claim before your FRA and receive an increase for deferring past it. This is true both for spousal benefits as well as your own benefit based off your own earnings record, though your spousal benefit will not grow beyond your FRA like your own benefit will.

Claiming early can be a godsend if you’re looking to retire early and need the money. It can also make sense to claim early if you have a health issue that may preclude you from living a long or even average lifespan. But remember, your social security spousal benefits strategy directly impacts the widows/widowers benefit your survivor receives following your passing when you claim early.

This is because your survivor will receive the higher of their benefit or yours after you pass away. If you claimed early they will get less than if you deferred and claimed later. It sometimes makes sense for the higher earning spouse to delay taking benefits for this reason.

And don’t worry, there are two avenues you can pursue if you’ve already claimed early but changed your mind and want to defer.

Hit the reset button

You can hit the reset button on your Social Security payments if you do it within the first twelve months of receiving payments. The only catch is that you have to pay back everything you received. Here’s a quick example:

Jessica, a seasoned logistics manager, is offered an early retirement package from her employer at age 62. She accepts it, retires, and begins collecting her Social Security. Eight months later she is approached by a rival firm to come work for them four days a week. Somewhat bored in retirement, Jessica accepts the offer.

She can pay back all of the Social Security payments she received, without interest, and file form SSA-521 to stop her benefits and withdraw her application. The Social Security Administration looks at it as if Jessica never took the benefits in the first place when she does this. She can reapply at any time in the future, at which point she will receive a higher benefit for having waited to claim benefits.

Flow chart of social security rest rule

There are a couple snags that Jessica will have to work through on this. She requested tax withholding from all of her Social Security payments. She’ll have to include the amount that was withheld when she repays what she received (or didn’t receive in this case). And while Jessica’s spouse didn’t claim a spousal benefit when Jessica filed, if they had then Jessica would have needed to pay that back as well!

This is a once in a lifetime option. Literally. You have 60 days from the date the Social Security Administration approves your withdrawal to cancel your request. Beyond that and its over. Use your withdrawal wisely.

Suspend benefits

You can also choose to suspend your benefits if you’ve hit full retirement age. It’s just like the withdrawal option discussed above but it doesn’t require you to pay anything back! The checks stop coming in and your benefit continues to grow every year you defer taking it under this option. Here’s another great use case for voluntary suspension:

Gordon and Donna are married, both age 67, and both are receiving Social Security Benefits based on their own earnings record. Gordon’s check was about $600 less than Donna’s each month.

Sadly, Gordon dies.

Gordon declares "oh lucky me"

Donna is now eligible for a widow’s benefit equal to what Gordon was receiving. Donna elects to suspend her benefit and switch to the survivor’s benefit even though it is less that what she’s currently receiving.

It seems counterintuitive but doing this allows her own retirement benefit to earn delayed credits. These credits increase her payout when she ultimately switches back over to a retirement benefit at age 70. For Donna, who is in great health and has longevity in her family tree, earning the delayed credits will net her more from Social Security over the long run. The optimal Social Security spousal benefits strategy for Donna is simply to suspend.

Both Claim at Full Retirement Age

Both you and your spouse are eligible for your full retirement benefit if you wait to your full retirement age to claim. You also get the maximum spousal benefit at this age (50% of the higher wage earner’s Primary Insurance Amount). But this is as little as 32.5% if you claim at age 62.

A quick word of cautionThe Primary Insurance Amount (PIA) is not the same thing as your retirement benefit. The PIA is based solely on your earnings over your most profitable 35 working years. A formula is then applied to your PIA to determine the size of your retirement check. Your benefit check will change based on when you claim Social Security, but your PIA will not.

You and your spouse probably weren’t born on the same day in the same year. Even if you both claim at your Full Retirement Age you will still be staggering the start times. If that’s the case you should consider delaying claiming if you are the higher earner and older half of the couple. Your own benefit will grow by 0.67% every month that you delay claiming. That works out to about an extra 8% every year that you wait!

Your younger spouse will also be eligible for the higher survivor’s benefit when you do this. Waiting has its advantages.

Both Claim at age 70

Waiting past your Full Retirement age has some benefits. The roughly 8%/year extra accrual means that if you defer to age 70 you will receive between 124% and 132% of your full retirement benefit! (Your date of birth determines whether you can get full benefits at 66 or sometime thereafter, hence the range).

But remember, there is no additional accrual for a spousal benefit past your full retirement age. Your maximum is capped at 50% of your spouse’s Primary Insurance Amount.

Split Decision and Claim at Different Times

The longer you wait the more you receive. If you don’t strictly need your Social Security payments to make ends meet, then it generally makes sense for you (or your spouse if they’re the higher earner) to wait on claiming Social Security. The higher earner gets delayed credits on their higher Primary Insurance Amount, and this will equate to both a larger benefit for them and a greater survivor’s benefit for the other spouse.

But it’s easier to see it in action:

The higher earner is older

Dan was born in 1960 and is married to Linda, who was born in 1963. Both hit their full retirement age (FRA) at age 67. Dan’s Primary Insurance Amount (PIA) is $2,100/month and Linda’s is $800/month. Because Linda’s PIA is less than half of Dan’s, she is best served by taking a spousal benefit at her FRA as opposed to claiming on her own record.

But she will have to wait for Dan to begin his Social Security before she can claim a spousal benefit based on his earnings record! Dan has longevity on his side and the two have built up healthy balances in their investment accounts. They realize they’d earn more over the long run by delaying Dan’s benefits since he’s the higher earner.

Linda claims a retirement benefit based on her own earnings record when she retires at 64. Dan waits until age 70 to apply. His own benefit grows to $2,715/month due to the delayed credits. Meanwhile, Linda switches over to a spousal benefit at the same time Dan applies. Her benefit increases to half of Dan’s PIA ($2,100) $1,050 and her survivor benefits steps up as well.

Flow chart of split decision spousal claiming strategy

Remember, survivor benefits are calculated from the deceased’s retirement benefit amount. But spousal benefits are based solely on PIA and are never more than 50% of the higher earning spouse’s PIA! Linda’s spousal benefit stopped increasing when Dan stopped working and she hit her full retirement age, but her survivor’s benefit continued to increase as Dan continued to earn delayed credits on his own retirement benefit.

The higher earner is younger

Sara is 59 and married to Doug, age 63. Sara is a physician and Doug is an artist. Both hit their full retirement age at 67. Sara has a PIA of $2,600 and Doug’s is $770, making him a great candidate for a spousal benefit.

Despite the age reversal, the solution for Sara and Doug is the same as it is for Linda and Dan above. Doug will claim his own retirement benefit first while Sara delays hers for increased credits. Doug will switch from his retirement benefit to half of Sara’s ($1,300/month) at his age 74, when Sara finally flips the switch and turns on her own retirement benefit at her age 70.

Special Situations

Restricted Application

There is a special loophole that was closed down years ago, but if you or your spouse turned 62 by the end of 2015 then you are grandfathered in! You can still use the claiming strategy known as “restricted application”.

The younger spouse claims Social Security benefits based on their own earnings record. When the older spouse hits their full retirement age they apply for benefits as well but restrict their application solely to spousal benefits. This is the part of the strategy that was closed. The Social Security Administration doesn’t let you pick between spousal benefits and your own retirement benefits anymore; they simply deem you to have filed for whichever benefit is highest regardless of what you apply for.

Using the restricted application strategy allows the older spouse to claim a spousal benefit while letting their own retirement benefit grow and earn delayed credits. They will switch back over to their own earnings record at age 70.

But this strategy is nearly obsolete anyway. If you turned 62 in 2015 you are now (or soon turning) 69. If you qualify but haven’t yet deployed this strategy, then the best case scenario for this is just one extra year of delayed credits.

Divorce and Remarriage

So what about divorcees? You will generally qualify for a spousal benefit from a former spouse’s record if the marriage lasted at least ten years and you are at least age 62 when you apply. However, there is a two-year rule that stipulates that the divorce must be at least two years old if your former spouse qualifies for benefits but has not started taking them before you qualify for spousal benefits. You’re left to claim on your own record over the first two years if that’s the case.

Your spouse’s marital status does not impact your spousal benefit eligibility. Their new spouse won’t disqualify you from claiming a benefit on their record, for example.

But you cannot claim spousal benefits on the former spouse’s record if you remarry. Your spousal benefit will switch over to your current spouse’s earnings record when you tie the knot!

GPO and WEP

If you or your spouse receive a government pension based on work that was exempt from Social Security taxes, then the Windfall Elimination Provision (WEP) and/or Government Pension Offset (GPO) provisions could impact your household benefits.

WEP does not impact spousal benefits. If only impacts work completed on your record. But GPO could reduce or wipe out your spousal benefit entirely. The provision applies when you receive a retirement pension from Federal, state, or local government for work in which you did not pay into Social Security. It does not apply, for example, if you receive a pension that’s not based on your earnings (i.e. are the survivor of the person who initially had the pension).

When GPO applies, it reduces spousal and survivor’s benefits by 2/3 of the amount of the government pension received. If the 2/3 of that pension is greater than the spousal benefit, then the benefit is completely wiped out!

Pro Tips

There is an earnings test that is applied to your payments if you claim before your Full Retirement Age. The Social Security Administration will withhold some or possible all of your payments if your income for the year reaches certain levels. This can be problematic if you planned to take a spousal benefit while continuing to work.

Note though that the earnings test applies to your income only. You may be taking a benefit based on your spouse’s record but its your current wages that dictate how much of that benefit is withheld. You can use the retirement earnings test calculator to estimate how much of your benefit will disappear if you keep working while claiming early.

Additionally, up to 85% of your Social Security benefit could be taxable at a Federal level depending on your household income, while an additional 13 states also tax Social Security income. Income tax withholding from your Social Security payments is optional and entirely up to you, but Medicare Part B premiums are automatically deducted if you’re 65 or older and enrolled in Medicare Part B.

Your benefit might not be what you were hoping for following taxes, Medicare, and in some cases the earnings test. Its worth working through these costs before submitting paperwork to start your Social Security!

The Bottom Line

Your Social Security spousal benefit strategy may net you an extra few hundred dollars a month every month for the rest of your life if you manage it correctly. That could add up to tens of thousands of dollars over the long term! You receive no delayed credits for claiming a spousal benefit past your full retirement age, but your spouse may be able to increase a survivor’s benefit payable to you by deferring their own Social Security claim date.

Government pensions, taxes, Medicare, and whether you keep working while claiming all play a role in determining your net benefit amount as well. And divorcees face some nuanced decisions, too.

We do our best to empower to make confident decisions when we publish articles like these. But we can also help if you’re struggling to make your best Social Security claiming decision. Call us, email us, or use the booking widget on our site to make an appointment directly on our calendar. We’re friendly and here to help!

The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but is intended to help manage risks and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax, or financial advice. Please consult a legal, tax, or financial professional for information specific to your individual situation.

You're Finished!

Thank You!

Your checklist is on the way! Don’t forget to check your spam folder if you don’t see it soon.

Almost Done...

Tell us where to send our Newsletter.

Where shall we send your Retirement Readiness Checklist?