May 23, 2024

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My Wife Claimed Social Security at 65. Can She Collect the Max Spousal Benefit When I Retire?

My wife started collecting Social Security at age 65, but it’s a tiny amount. I am planning on retiring in two years at 65 (67 is my full retirement age). Can my wife collect spousal benefits of 50% of my full retirement benefits once I retire?

– James

Unfortunately, the likely answer is “no,” although the amount your wife is entitled to receive will depend on her age. Understanding the intricacies of Social Security payments and more specifically, spousal benefits, is critical as it can help in developing a strategy for maximizing benefits in retirement. First, we’ll outline how Social Security spousal benefits work, and then we’ll share a couple hypothetical scenarios that may be helpful for assessing your situation.

Do you have more questions related to Social Security and retirement planning? Speak with a financial advisor today.

How Social Security Spousal Benefits Work

At age 62, you can begin collecting your own Social Security benefits, which are based on personal working and income history. But if you’ve been married for at least a year at the time that your spouse files for Social Security, you can switch to the spousal benefit.

The maximum spousal benefit is capped at 50% of the retiring spouse’s benefit amount at their full retirement age (FRA), which is between 66 and 67 for those born after 1943. For those born between 1943 and 1954, the FRA is 66, but it increases by two months each year for those born between 1954 to 1960, when it reaches 67. The FRA benefit is known as your primary insurance amount (PIA).

The Social Security Administration will pay out either your own benefit or your spousal benefit, whichever is higher. Just keep in mind that waiting to collect spousal benefits beyond your own FRA does not increase the percentage that a spouse can collect. (And if you need help planning for Social Security, consider working with a financial advisor.)

Switching from Individual to Spousal Benefits

Retired African-American couple dancing

Retired African-American couple dancing

The time at which someone begins collecting their own benefits and the time at which they transition to spousal benefits both impact their net monthly payment.

If they begin collecting their individual benefits before their FRA, they’ll receive less than their PIA. Their benefits will be reduced in perpetuity even when they switch to spousal benefits.

If they switch to spousal benefits before their FRA, the amount they receive also won’t be the full 50% of their spouse’s PIA. That’s because another reduction factor is applied to the percentage of what they ultimately receive. If they begin collecting Social Security before reaching their own FRA and then transition to a higher spousal benefit, their spousal benefit is calculated as an “excess amount.” We’ll share some examples of what this means later.

However, if they aren’t entitled to their own benefits and immediately begin collecting spousal benefits upon filing, they’ll receive a percentage of their spouse’s PIA. This percentage is based on their age at the time of filing in relation to their spouse’s FRA.

For these reasons, under the situation in question, your wife’s benefits won’t be worth 50% of your full retirement benefits when you retire if she was born after 1943. That’s when FRA increased from 65 to 66. If she was born after 1943, her FRA is between 66 and 67. The fact that she began collecting at 65 will leave her collections permanently reduced, even when she switches to spousal benefits due to the excess benefit calculation.

However, if your wife reaches her own full retirement age when you begin collecting Social Security in two years, her excess benefit calculation will be based on 50% of your PIA. In this case, an additional reduction factor will not be applied to the 50% since she will have reached her FRA. (A financial advisor may be able to help you plan and optimize your Social Security benefits.)

Examples of Spousal Benefit Calculations

Calculating Social Security benefits can be complicated due to the number of factors that inform your overall benefit amount. Here are two examples relevant to the situation in question that may help illustrate the monthly spousal benefit your wife stands to receive:

Scenario 1: Full Benefits at 66

For simplicity’s sake, let’s imagine your wife’s FRA is exactly 66, but she began collecting this year at exactly age 65. Her monthly PIA is $500 and your monthly PIA will be $2,000 when you retire in two years.

Because your wife began collecting at 65 – exactly 12 months before reaching her FRA – her monthly benefit is reduced by about 0.56% for each of those months. As a result, her permanent base collection amount would be reduced by 6.67% (12 x 0.56), leaving her with around $467 per month before transitioning to spousal benefits.

In two years when you retire and she switches to spousal benefits, your wife will be older than 66, so she will be past her FRA. As a result, a 50% excess spousal benefit factor will be applied to her collection amount. To calculate the excess spousal benefit, multiply your PIA ($2,000) by 50% and subtract her PIA ($500). This yields an excess spousal benefit of $500. Add this excess benefit to her base collection amount and you’ll arrive at her full benefit, which is $967 ($467 + $500).

In this scenario, your wife would receive slightly less than 50% of your full retirement benefit because she began collecting early and is subject to the excess spousal benefit calculation.

Scenario 2: Full Benefits at 67

A Social Security card sandwiched between cash.

A Social Security card sandwiched between cash.

Now let’s say your wife’s FRA is 67 and she began collecting at exactly 65 this year. Let’s assume her monthly PIA is $500, your monthly PIA is $2,000 and you will retire in one year. Of course, this situation doesn’t reflect your intended retirement timeline, but it is helpful to illustrate another point about the excess spousal benefit calculation.

Here, your wife begins collecting two years early, leading to a benefit reduction factor of 13.33%, or a permanent monthly benefit of $433. When you retire next year, she will still be 12 months shy of her FRA, so she will not receive the full 50% excess spousal benefit factor. Instead, the factor is reduced by about 0.69% for each month up to FRA, so her excess benefit factor will be 45.83%.

Applying this to your PIA of $2,000, her excess benefit will be around $417, as follows:

(0.4583 x $2,000) – $500 = $417 (rounded)

Adding this to her base collection amount of $433, her total spousal benefit will be $850. This example illustrates how beginning to collect both her own benefits and spousal benefits before her FRA can further impact her total monthly collection amount. (And if you need help calculating Social Security benefits, consider speaking with a financial advisor.)

Bottom Line

While your wife will likely not be able to collect 50% of your full retirement benefit, the ultimate amount she collects through spousal benefits will depend on her age. Determining when to begin collecting Social Security benefits will depend on a number of factors, including marriage status, life expectancies and other sources of retirement income. However, to the extent it’s possible, waiting to collect Social Security until your full retirement age will generally yield higher payments.

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Jeremy Suschak, CFP®, is a SmartAsset financial planning columnist who answers reader questions on personal finance topics. Got a question you’d like answered? Email [email protected] and your question may be answered in a future column.

Jeremy is a financial advisor and head of business development at DBR & CO. He has been compensated for this article. Additional resources from the author can be found at dbroot.com.

Please note that Jeremy is not a participant in the SmartAdvisor Match platform, and he has been compensated for this article. Some reader-submitted questions are edited for clarity or brevity.

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