I love helping people uncover benefits they didn’t know they were eligible for from Social Security. Last week, I spoke to a woman who never worked outside the home. Since she didn’t have any earnings she thought she wouldn’t be eligible for any Social Security benefits either. Little did she know that the Social Security system has special provisions for people just like her.
Known as spousal benefits, this provision allows people to collect up to 50 percent of the worker’s benefit regardless of whether the spouse themselves had any work history. The woman was ecstatic to learn she would receive over $1,000 per month as a result of this provision. Furthermore, since she was close to her full retirement age of 66, there would be no increased benefits by waiting any longer past age 66.
Most people have heard about the increased benefits by waiting until age 70 but don’t realize the additional 8 percent increase does not apply to spousal benefits. Therefore, it doesn’t make any sense to wait past full retirement age to collect a spousal benefit. If someone applies for the spousal benefit prior to full retirement age, there is a reduction based on the person’s age with someone collecting at age 62 receiving a reduction of 30 percent.
Things get more interesting when the spouse has an earnings record of their own and is also entitled to a worker’s benefit. Laurence Kotlikoff, a professor at Boston University recently published a book with two co-authors, Philip Moeller and Paul Solman explaining the various options available to couples. The book “Get What’s Yours: The Secrets to Maxing Out Your Social Security” is helpful in explaining the many rules of Social Security through examples.
At the first spouse’s death, the spousal benefit is typically replaced by survivor benefits which are significantly higher than the spousal benefit (which is no longer paid). The survivor benefit is based on the worker’s benefit which is one of the main reasons for delaying benefits. Not only will the worker receive a higher benefit while they’re alive but so will the surviving spouse. We’ve seen situations where this can easily represent another $50,000 to $100,000 of additional benefits depending on the life expectancy of each spouse.
While the rules are complex, knowing which Social Security benefits you may be eligible for is the first step in developing a secure retirement income plan.
As published in the Racine Journal Times | May 6, 2015