As if you really needed another reason to thank your spouse, here it is: When it comes to Social Security, your beloved’s benefits could have a meaningful impact on your lifetime “take home pay.”
But you need to play your cards right, and that can be easier said than done.
For one, there’s an awful lot to know. Spousal benefits are a powerful (but not necessarily well understood) component of the Social Security program.
And secondly, there’s no one-size-fits-all strategy for making the most of your joint benefits. Your decision will depend on the benefits eligibility, age and health of both you and your spouse. It also should take into account your other sources of retirement income (e.g., IRA, 401(k) or other savings).
Today, I’ll highlight some key points and provide a few hypothetical examples that hopefully will offer some food for thought.
Know This (at a Minimum)
No matter what your circumstance, know at least this much about spousal benefits:
- You are entitled to a spousal benefit if you have been married to your spouse for at least one year.
- The amount of your spousal benefit is equal to 50% of your spouse’s full Social Security benefit (his or her primary insurance amount) once you reach full retirement age (FRA).
- For you to collect spousal benefits, your spouse must have filed for Social Security, but does not need to be actively collecting his/her benefits. This is known as filing and suspending. Note that your spouse cannot suspend his/her own benefit (thereby earning an increased individual benefit) until he/she reaches FRA.
For the many other nuances associated with spousal benefits, check out our Social Security guide here.
Keeping It Real
Now let’s look at a few “real-life” applications:
Single-Earner Household: A common collection strategy under a single-earner scenario is for the non-earner to begin taking spousal benefits (50% of his or her spouse’s individual benefit) as soon as he or she reaches FRA. Remember, there’s no advantage to delaying, as spousal benefits do not increase after FRA (see graph below).
Source: Social Security Administration (www.ssa.gov)
Importantly, as noted above, the earner must first file for Social Security in order to “activate” those spousal benefits, but does not actually need to begin collecting individual benefits. This “file and suspend” strategy (available at FRA, but not before) allows him/her to earn a monthly “raise” in individual benefits (I spoke about this in my last post) while his/her spouse collects the maximum spousal benefit. This can boost overall family income down the road.
Two Earners, One High and One Low: This scenario is more complicated. In a case where the spousal benefit is larger than the individual benefit, the lower earner can collect individual benefits at the earliest possible age—currently age 62, and then add on adjusted spousal benefits at FRA. The higher earner, meanwhile, would file and suspend in order to take advantage of increased individual benefits.
Two Similar Earners: There’s a potentially lucrative but often overlooked strategy for couples who have accrued similar benefits: One can take individual benefits at FRA while the other takes spousal benefits and allows his/her individual benefits to grow. At age 70, the latter converts to individual benefits and, having earned a 32% “raise” from the government, increases the household income stream by a meaningful margin.
Spousal benefits can be complex. I encourage you to take advantage of all available resources, including the BlackRock Retirement Center, the Social Security Administration website and, of course, your financial advisor, to arrive at the collection strategy that makes the most sense within the context of your broader retirement plan.
Sources: BlackRock; Social Security Administration. Please see the Social Security Administration’s website at www.ssa.gov for more information, restrictions and limitations about Social Security benefits.
Rob Kron, Managing Director, is the head of Investment and Retirement Education for BlackRock’s U.S. Wealth Advisory group. He is the newest contributor to The Blog and provides practical information on topics that are important to every saver and investor of every age.
The above commentary is based on Social Security laws in effect as of May 2014. Congress has made changes to the laws in the past, and can do so at any time in the future.
This material is provided for educational purposes only and does not constitute investment advice. The information contained herein is based on current tax laws, which may change in the future. BlackRock cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. The information provided in these materials does not constitute any legal, tax or accounting advice. Please consult with a qualified professional for this type of advice.
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