How to Maximize Social Security Spousal Benefits

For many years, one of the most unknown Social Security benefits was that the former spouses of a wage earner could be used to collect benefits when they reached retirement age. One of the pieces of misinformation that was going around was that somehow this benefit would reduce the amount the wage earner would receive, so exes would not let their wives know the money was available to them. But for a former spouse to claim the benefit does not reduce the wage earners amount by one cent.

So how does the spousal benefit work? It has two parts, both based on income. The person claiming the benefit calculates their own benefit amount based on their earnings. (A recent article by Kiplinger used the word “her” but it is not certain that the person claiming the spousal benefit has to be a woman.) Then the benefit amount of the higher wage earner is calculated. If there is a significant difference between the two calculations, the lower earning person can receive a benefit up to 50% of the higher wage earner’s benefit.

Using a bare bones example, if a spouse was married for 10 years, then divorced and had $0 income until the time of retirement, they would be entitled to 50% of the former spouse’s Social Security benefit. If the higher wage earner receives $1000 a month, the former spouse would be eligible for a $500 a month benefit.

Things get more complicated when the lower income spouse has worked and earned a reasonable income. The strategy is all in the timing of claiming the benefit. If the lower income person can file for Social Security benefits early, and before the higher earning person files their claim, the lower earning person can collect their monthly benefit based on their lower income. Once the higher wage earner claims their benefit, the spouse can make the switch and receive the 50% benefit once the claim is processed. The only reason that this strategy will not work is if the monthly benefit of the lower wage earner is greater than the 50% benefit they would receive from the higher wage earner.

The timing of when to file for retirement benefits can be crucial. If the lower wage earner claims the spousal benefit before they reach full retirement age, which currently is 66 for those closest to eligibility, they will lose out when making the claim for the higher wage earner’s benefit amount. The reason is that the benefit calculation is based on the difference between what the lower wage earner is receiving in benefits and the higher wage earner’s benefit.

If the lower wage earner claims their benefit prior to reaching full retirement, whatever amount they will receive will be subtracted from the 50% of the higher wage earner’s monthly benefit. So as an example, if a spouse claims a $500 monthly benefit prior to reaching full retirement, they will receive the $500 up to full retirement age. If they choose to switch over to the spousal benefit to maximize their monthly benefit amount, that $500 will be subtracted from the 50% amount the higher wage earner receives. If the higher wage earner benefit is, say, $1200 a month, the $500 is subtracted from $600 (50% of the $1200) with a net benefit increase of $100. If the lower wage earner waits until full retirement age, the calculation would change from $600-$500 to $600-$0 because no prior benefits have been received.

Finally, the timing issue comes into play if the higher wage earner files for benefits first after reaching full retirement. This is called the “deeming” rule and prevents the lower wage earner from trying to take advantage of the spousal benefit provision. Basically, waiting to file for benefits just to get a higher monthly spousal benefit amount is not allowed.

Though the spousal benefit can be a point of lifelong contention between two former spouses, reaching an amicable agreement can make both parties’ life much easier. The principle that can be applied is that both people paid Social Security taxes during their years of employment, so maximizing their Social Security benefit only makes sense. From a more cynical view, there are many people receiving Social Security benefits who are bilking the system, so getting what you are legally entitled to only makes sense instead of having that money find its way into the hands of someone who is dishonest.


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