There's no shortage of important financial decisions you must make as you plan for retirement. These decisions can range from determining your savings goal to where you ultimately want to settle down.
One of the biggest decisions anyone has to make is when they plan to claim Social Security since it's such an important part of many people's retirement finances.
Social Security decisions can be more complex for married couples because each partner's benefits can impact the other's financial situation. And sometimes, one partner's benefits will far exceed the other's. Fortunately, Social Security offers spousal benefits, which can be a great option for married couples with a significant income disparity over their careers.
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How Social Security spousal benefits are calculated
Generally, Social Security calculates your monthly benefit by using a formula that takes into account the 35 years when your income was the highest.
It adjusts the earnings for inflation to reflect their value in today's dollars and then divides them by the number of months in those 35 years. For people without 35 years' worth of income, Social Security uses zeros for the missing years to calculate your average.
There are many instances where a spouse may take time off from work or choose to become a stay-at-home parent, decreasing their potential Social Security benefit. That's the beauty of spousal benefits, though. They allow someone to receive up to 50% of their spouse's primary insurance amount (PIA).
To qualify for spousal benefits, you must be married for at least one year, and one of the following must apply:
- You're at least 62 years old.
- You're caring for a child under 16.
- You're caring for a child with a disability.
Even if you're divorced, you may be able to claim spousal benefits based on your former partner's work history if you were previously married for at least 10 years.
The impact of claiming age on spousal benefits
Your full retirement age (FRA) is when you're eligible to receive your PIA, but it's not the age when you have to claim benefits. You can claim before then, reducing your monthly benefit, or delay them past FRA, increasing your benefit.
One's full retirement age depends on their birth year:
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For the primary spouse (the one claiming based on their own work record), benefits decrease 5/9 of 1% each month before their full retirement age, up to 36 months. Each month after that further reduces benefits by 5/12 of 1%.
But the reduction is different for the person claiming spousal benefits. Their benefits decline 25/36 of 1% each month before their full retirement age, up to 36 months, and then 5/12 of 1% for each month thereafter.
Although monthly Social Security benefits increase if the primary spouse delays past FRA to claim, this doesn't apply to those receiving spousal benefits.
Seeing spousal benefit reductions in action
Here's a look how claiming age can affect the benefits of someone with an FRA of 67:
| Claiming Age | Reduction for Primary Spouse | Reduction for Spousal Benefits |
|---|---|---|
| 62 | 30% | 35% |
| 63 | 25% | 30% |
| 64 | 20% | 25% |
| 65 | 13.33% | 16.67% |
| 66 | 6.67% | 8.33% |
Source: Social Security Administration.
As an example, let's assume the primary spouse's PIA is $2,000. If the person claiming spousal benefits waits until FRA (67 in this case) to claim, their monthly benefit would be $1,000. However, if they claim early, this would be their monthly benefit at different ages (rounded to the nearest dollar):
- 62: $650
- 63: $700
- 64: $750
- 65: $833
- 66: $917
Check your earnings record to understand what kind of benefit to expect
Checking your earnings record on the Social Security Administration website (SSA.gov) will give you an idea of what monthly benefit to expect at different claiming ages.
Going back to our above example, if you're eligible to receive $1,000 in spousal benefits, but Social Security projects the benefit based on your work history could be even higher than that if you wait until age 70, you have to consider which option better fits your budget and planning.
However, married couples with large income gaps (especially ones sustained throughout a career) will often find that spousal benefits are the appropriate route to take. It's a great way to maximize retirement income and add more financial stability in your golden years.
