A nonworking spouse is eligible for a Social Security spousal benefit, but the age of each person can affect how much.
Especially if there's an age difference, couples should consider important timing issues in deciding when each spouse should begin collecting benefits.
To help make the decision, every couple should look at all of their sources of income, their projected expenses during retirement, and the health and anticipated lifespan of each spouse.
I recently received two questions about collecting Social Security spousal benefits. Interestingly, each question involved a nonworking spouse who wasn't eligible to collect on their own. The difference in the questions had to do with the relative ages of the spouses and the timing for beginning to collect the spousal benefit.
While you might not think the age of the nonworking spouse would be particularly relevant, it actually does bring up some issues that couples should be aware of when making the important decision about when each spouse will begin collecting Social Security. Here's an overview of the two situations—and some things that everyone should consider.
Basics of the spousal benefit
Before we get into the different scenarios, let’s review a few points:
The spousal benefit allows a husband or wife to collect up to 50 percent of a working spouse's Social Security benefits, even if that spouse has never worked.
- To claim a Social Security benefit based on your spouse’s work record, your spouse has to first file for their own benefit.
- You can file for a spousal benefit as early as age 62. However, filing before full retirement age (FRA) results in a permanent reduction of benefits.
- At the death of a spouse, the survivor benefit for the nonworking spouse is 100 percent of the earner's benefit. The spousal benefit no longer applies.
That may all seem pretty straightforward, but here's how it can create a different issue for my two readers.
Situation #1: The nonworking spouse is older than the working spouse
In the first situation, the wife is 70 and the husband is 62. He's the breadwinner and she's been a homemaker. The reader asked whether the wife could collect the spousal benefit now rather than waiting until her husband retires at 66.
Seems like a reasonable question but the catch is that for the wife to be eligible to collect on her husband's work record, he'd first have to file for his own benefits. But he's only 62. If he files now, his benefit will be permanently reduced by 25 percent, and the 50 percent she could collect would also be reduced accordingly. Plus, if the husband continues to earn beyond a certain limit ($17,040 in 2018), his benefit—and his wife's—would be temporarily reduced until he reaches FRA (66 for those born between 1943 and 1954).
So let's say at FRA the husband would collect $2,000. Because his wife is already past FRA, she would be eligible to collect half of that ($1,000) for a total monthly benefit of $3,000. But if he files now at 62, his benefit will be permanently reduced to $1,500 (plus adjustments for inflation). She, on the other hand, would still receive $1,000 since she is beyond her FRA (but if she were under her FRA, her benefit would be reduced). Their total monthly benefit would be $2,500—$500 a month less than if he waited until his FRA to file. Also, if the husband predeceases his wife, her survivor benefit would also be reduced from $2,000 to $1,500, due to filing before FRA.
Another option is for the husband to wait even longer to file. For each year after his FRA up to age 70, his benefits would increase by 8 percent.
In this case, would the spousal benefit also increase? Unfortunately, no. Spousal benefits are based on the amount that would be paid at the earning spouse's FRA. Delayed retirement credits don't apply to spousal benefits. However, the survivor benefit would be 100 percent of the husband's delayed benefit—which could be a significant increase. In the above example, if the husband delayed claiming until he reached 70, leaving out any inflation adjustments, the survivor benefits to his wife would be $2,640 should he predecease her.
Of course, the size of the current benefit isn't the only factor. Because of the age difference, this couple should also consider the health and anticipated longevity of each person as well as the financial resources available to the surviving spouse. It may be more advantageous to collect benefits as early as possible for a household with limited resources and a substantially lower combined life expectancy for both spouses. But they should think about different scenarios and look at the numbers before deciding.
Situation #2: The nonworking spouse is younger than the working spouse
In this situation, the husband is a year older than his wife and the wife has no work record of her own. The question here is, if he files at his FRA of 66 and his wife files for the spousal benefit at the same time, would her benefit be reduced because she's only 65? The easy answer is yes. And at 65, the reduction would be about 8.3 percent. But that's not the only thing this couple should consider.
In many cases, it would be ideal for the husband to wait until age 70 to collect. The 8 percent jump every year between FRA and age 70 represents a potentially big chunk of money. However, as in the first situation, the spouse’s benefit would not increase beyond 50 percent of her husband’s FRA benefit.
Going for the highest benefit
In each of these cases, the longer the earning spouse can delay filing for benefits (up to age 70), the higher the monthly benefit for the two of them—and the higher the survivor benefit. But again, there are many other things to consider.
When deciding on the best time to collect Social Security, every couple needs to understand that they don’t have to claim benefits as soon as they are eligible or as soon as they retire. Instead, they should look at all their sources of income, their projected expenses during retirement, and the health and anticipated lifespan of each spouse and make an informed decision based on their own circumstances. Your financial advisor can help you put the pieces together. You can also find more information and benefits calculators at ssa.gov.
Have a personal finance question? Email us at firstname.lastname@example.org. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.