Without fail, when I sit with clients to discuss maximizing their Social Security claiming strategy the higher earning spouse will say rather emphatically, “My spouse will get half of mine”.
WELL, THAT’S A BIG FAT MAYBE!
The MOST a spouse will receive as a spousal benefit is one-half of the high earner spouse’s Primary Insurance Amount (PIA – the amount on your Social Security statement). And in order to receive that, the low earner spouse needs to be of Full Retirement Age (FRA – for most people today that is 66).
You see, when Social Security pays you a spousal benefit, if you are eligible for your own worker benefit, you will be paid your worker benefit first, and then the spousal benefit on top of that. So, in reality your spousal benefit is made up of your own worker benefit and the additional spousal benefit. It’s confusing because it’s called a spousal benefit, but it’s actually made up of two parts. The amount a spouse will receive is determined by when the spouse files, not when the other spouse files. If you file at 62 your benefit will be lower than filing at 63. The closer you file to Full Retirement Age (66), the closer you get to the 50% of the higher earner’s Primary Insurance Amount.
Here is a golden nugget: Never wait past Full Retirement Age (66) to claim your spousal benefit; the amount will never get any larger.
Now let’s calculate your “true” spousal benefit. The “true” spousal amount is equal to 50% of the high earner Primary Insurance Amount less the low earner Primary Insurance Amount. If the high earner PIA is $2,500 and the low earner PIA is $1,000, the “true” spousal benefit is $250 ($2,500/2=$1,250-$1,000=$250). If the low earner files for spousal benefits at Full Retirement Age, they will receive $1,250 ($1,000 – their own worker benefit plus 100% of the “true” spousal benefit of $250). This is equal to 50 % of the high earner Primary Insurance Amount because the low earner filed at Full Retirement Age
What happens if the low earner files before Full Retirement Age? Both the low earner’s worker benefit and the spousal benefit will be reduced. What we are learning here is that the spousal benefit is determined by when the low earner files for benefits, not when the high earner files. Also, it’s a three- step calculation: calculating the reduced worker benefit, calculating the reduced spousal benefit, and adding the two together.
Below is a graph showing how spousal benefits are calculated if the low earner files early.