This Social Security rule is gone, but spouses still have options
Social Security beneficiaries who turn 70 on January 1 are the last individuals to benefit from the special spousal rule. For everyone else, that rule is officially gone.
Individuals born on or before January 1, 1954, are eligible to use a Social Security strategy that allows someone to receive the maximum amount by switching between their own benefits and their spouse’s benefits.
Under this rule, the higher-earning spouse would claim spousal benefits at “full retirement age,” and the other spouse would claim his or her own benefits. High earners will maximize their monthly benefit checks by switching to pensions at age 70 due to delayed retirement credits. The lower-earning spouse will have the opportunity to claim spousal benefits or keep his or her own benefits, depending on whichever is higher.
However, the last individual eligible to do so turned 70 last week.
Nonetheless, there are strategies available to couples who want to maximize their benefits. And it’s important that they discuss it.
“It is very important for married couples to have a Social Security plan,” said Matthew Allen, co-founder and CEO of Social Security Advisors.
Social Security always pays lower earners the higher of their individual or spousal benefits. Retirees and prospective retirees who want to claim benefits must create an online account with the Social Security Administration. Here you can see all of your benefits, as well as what benefits you can expect to receive at your claiming age (62, full retirement age, 70, etc.). Their information and business records are accurate.
From there, future beneficiaries can decide how to best utilize the benefits for themselves and their spouses after considering their other financial needs and resources. For many couples, this becomes a balancing act of trying to make the most of Social Security benefits without withdrawing from retirement savings too quickly or combining these benefits with income sources such as pensions or annuities. Couples should consider their future income needs and be careful not to take on too much from current investments. If one spouse dies and your Social Security income drops dramatically, you may not have enough money left.
Spousal benefits are available only if one spouse has already begun receiving benefits and are equal to half the other spouse’s basic coverage amount. The actual ratio will depend on several factors, including the ages of both people making the claim. Individuals seeking to claim spousal benefits will receive a reduced amount if they file before their full retirement age. Spousal benefits are always based on the other spouse’s primary insurance amount, regardless of when the higher-income spouse files the claim.
For example, if Spouse A is a high earner with a basic monthly coverage amount of $1,000 and full retirement age of 67, if Spouse A claims at age 62, his or her benefits will be reduced by 30% (or $700 per month). . If Spouse B claiming spousal benefits is claiming at FRA, her benefit will be half, or $500 per month. However, according to the Social Security Administration, if Spouse B takes over spousal benefits at age 62, her benefits will be reduced by 35%, or $325 per month.
Allen said it doesn’t always make sense for low-income people to wait to file a claim. Filing before FRA provides a couple with some additional income, and spousal benefits can always increase when the higher earner finally claims.
“This gives low-income people the ability to take some money out of the system in the event of an early death,” he said. Allen added that even low-income earners shouldn’t delay passing FRA because spousal benefits won’t increase at that point.
Financial planners and Social Security experts can help individuals maximize their benefits and provide detailed, month-by-month information on exactly when to claim.
“More people are taking the time to plan their vacations,” Allen said. “This is especially important for married couples because they have the most options for different permutations.”
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