Social Security is a critical component of retirement income for many Americans, and understanding how to maximize these benefits can significantly impact your financial security. For married couples, spousal benefits offer a unique opportunity to increase household income. However, many people are unaware of how spousal benefits work and how to use them effectively. In this article, we'll explore the ins and outs of Social Security spousal benefits and provide strategies to help you maximize your income.
What Are Spousal Benefits?
Spousal benefits allow a lower-earning spouse to receive Social Security benefits based on the earnings record of the higher-earning spouse. This can be particularly advantageous for couples where one spouse has earned significantly less over their lifetime or has limited work history.
Eligibility: To qualify for spousal benefits, you must be at least 62 years old, and your spouse must already be receiving Social Security benefits. The maximum spousal benefit is 50% of the higher-earning spouse’s Full Retirement Age (FRA) benefit. If you claim spousal benefits before your FRA, the benefit will be reduced.
Divorced Spouses: If you were married for at least 10 years, divorced, and currently unmarried, you may also be eligible for spousal benefits based on your ex-spouse’s earnings record. This can be an important source of income, especially if you didn’t remarry.
Maximizing Spousal Benefits
Maximizing spousal benefits requires careful coordination between spouses to ensure both receive the highest possible benefits. Here are some strategies to consider:
1. Timing Your Claims: The timing of when you and your spouse claim benefits can significantly impact the amount of spousal benefits you receive. If the higher-earning spouse delays claiming benefits until age 70, their benefit will increase due to Delayed Retirement Credits. While the spousal benefit is capped at 50% of the FRA benefit and does not receive these credits, delaying the higher earner’s benefits can still be beneficial, as it increases the overall household income.
2. Consider Your Age Differences: If one spouse is significantly younger, it may be beneficial for the older spouse to claim benefits first, allowing the younger spouse to delay their claim. This can maximize the younger spouse’s benefit over time. Additionally, the younger spouse could potentially receive spousal benefits while delaying their own benefits, which would continue to grow.
Impact of Working and Delaying Benefits
Working and delaying benefits can have a significant impact on your Social Security income, especially when it comes to spousal benefits. Here’s how:
Effect of Working: If the lower-earning spouse continues to work while receiving spousal benefits, their income could impact the amount of Social Security they receive if they are under their FRA. It’s essential to consider the earnings test, which may reduce benefits if earnings exceed a certain threshold. Once both spouses reach FRA, however, there’s no penalty for working, and benefits will no longer be reduced.
Delaying Benefits: While spousal benefits themselves do not increase beyond the FRA benefit, delaying the higher-earning spouse’s benefit can still result in a higher overall household income. The higher-earning spouse’s delayed benefits will continue to grow by approximately 8% per year until age 70, which can be especially beneficial for survivor benefits.
Common Mistakes to Avoid
When planning for Social Security, it’s crucial to avoid common mistakes that could reduce your spousal benefits:
Claiming Too Early: One of the most significant mistakes couples make is claiming benefits too early. Claiming before FRA will permanently reduce both your retirement and spousal benefits. It’s essential to consider whether you can afford to delay claiming benefits to maximize your income.
Not Coordinating Benefits: Failing to coordinate the timing of benefits between spouses can result in lost income. By carefully planning when each spouse should claim benefits, you can maximize the total household income over the course of your retirement.
Conclusion
Spousal benefits can significantly enhance your Social Security income, but maximizing these benefits requires careful planning and coordination between spouses. By understanding how spousal benefits work, timing your claims strategically, and avoiding common mistakes, you can ensure that you and your spouse receive the highest possible Social Security benefits.
If you’re nearing retirement and want to make the most of your Social Security benefits, schedule a consultation with one of our financial advisors. We can help you develop a personalized strategy that maximizes your household income and secures your financial future.
