This post was written by Jim Blankenship, CFP®, EA, a fee-only financial advisor and owner of the excellent finance blog Getting Your Financial Ducks in a Row, where he covers IRAs, Social Security, Taxation, and most other aspects of financial planning. I’ve known Jim for a long time and consider him an expert on Social Security and many other topics. His blog is must-reading for me and should be for you as well.
The Social Security benefit landscape is a complicated and confusing place to navigate. It’s tough enough to figure out what is the best time to file for your own benefits, let alone trying to coordinate benefits for yourself and your spouse. There are many confusing provisions of Social Security; below is a brief explanation of 3 misunderstood aspects of Social Security benefits.
When one spouse is eligible for retirement benefits, the other spouse is also eligible for a benefit based upon the first spouse’s record. The largest Spousal Benefit is 50% of the other spouse’s Primary Insurance Amount (PIA). The PIA is equal to that individual’s benefit available at Full Retirement Age (FRA). Full Retirement Age is 66 for folks born between 1946 and 1954, increasing to age 67 for those born in 1960 or after.
An individual may receive the Spousal Benefit as early as age 62, at a reduced rate. The other spouse must have filed for his or her own benefit – and could have suspended benefits (see File and Suspend below).
The confusing parts. The following areas always seem to trip up folks as they plan for the Spousal Benefit.
- Only one of the spouses can receive Spousal Benefits at a time. The other spouse must have filed or filed and suspended for his or her own benefit.
- At or after FRA, the individual can receive Spousal Benefits alone, separate from the retirement benefit on his or her own record (see Restricted Application below). This allows the spouse receiving Spousal Benefits to delay receiving his or her own benefit, increasing that retirement benefit (via Delayed Retirement Credits).
- Before FRA, filing for Spousal Benefits will result in a reduced Spousal Benefit. Plus, filing for Spousal Benefits before FRA will result in deemed filing for the individual’s own retirement benefit, with both benefits reduced.
File and Suspend
When the individual who is eligible for a retirement Social Security benefit reaches Full Retirement Age (FRA), the individual may voluntarily suspend receiving benefits. By suspending benefits, the individual has accomplished two things:
- The individual has established a filing date for benefits. This means that the Social Security Administration has a record that the individual has filed for benefits. Since that record exists, other benefits become available based upon the individual’s Social Security record. Also, at some point in the future, the individual could change his or her mind and collect retroactive benefits from the established filing date to the present, continuing to receive monthly benefits as if the filing was never suspended.
- The individual will not receive benefits while the suspension is in place. If the individual does not collect retroactive benefits at a later date (see #1 above), Delayed Retirement Credits will add to his or her future benefit. This amounts to an 8% increase in benefits per year of delay.
As mentioned above, when an individual reaches Full Retirement Age (FRA) and is eligible for a Spousal Benefit, the individual may choose to file a Restricted Application for Spousal Benefits only. This type of application provides for the individual to receive *only* the Spousal Benefit, based upon his or her spouse’s record. By doing so, he or she can delay filing for his or her own benefit to a later date. With the delay, the individual’s own benefit will gain Delayed Retirement Credits; maximizing the benefit by age 70.
I invite you to contact me to ask any questions that you might have, to tell me what you like or don’t like about this site, and to suggest topics that you would like to see covered here in the future.
Please check out our Resources page for tools and services that you might find useful.