Wednesday, February 11, 2015 |
Joe Alfonso, GoLocalPDX Contributor
Here are some more reader questions on Social Security that I am sure many of you share. I hope you find my answers helpful.
Q: If my husband works until he’s 70 and I wait until then to file for a spousal benefit (I would be 67) will I qualify for 50% of his larger retirement benefit at that age or is the maximum a spouse can qualify for 50% of their husband’s or wife’s benefit at FRA?
A: The spousal benefit equals 50% of the full retirement age (FRA) benefit, called the PIA, of your husband if you claim at FRA. The spousal benefit is not increased or reduced due to the age at which your husband actually starts taking his retirement benefit. All that matters is his PIA and the age at which YOU claim. If you claim the spousal benefit before your FRA, this benefit will be reduced. Unlike the case of retirement benefits, there is no annual credit for delaying to claim the spousal benefit past your FRA.
Perhaps these examples will help illustrate the above. Note that cost of living (COLA) adjustments are ignored and I am assuming that FRA is age 66:
Example 1
• Husband A’s PIA is $1,000
• A’s wife is at FRA
• A files for his retirement benefit at age 62 and receives a reduced benefit of $750
• A’s wife files for a spousal benefit.
A’s wife will receive $500 (50% of $1,000) because she is at FRA.
Example 2
• Husband A’s PIA is $1,000
• A’s wife is at FRA
• A files for his retirement benefit at age 70 and receives an increased benefit of $1,320
• A’s wife files for a spousal benefit.
A’s wife will receive $500 (50% of $1,000) because she is at FRA.
Example 3
• Husband A’s PIA is $1,000
• A’s wife is 62
• A files for his retirement benefit at age 70 and receives an increased benefit of $1,320 (due to delayed retirement credits of 8%/year)
• A’s wife files for a spousal benefit.
A’s wife will receive $350 (35% of $1,000) because she claimed early.
Unlike the examples above, it seems that your FRA is age 67 so File and Suspend would not be an optimal strategy for you and your husband given your age difference. File and Suspend is used to qualify a lower earning spouse for a spousal benefit while the higher earner files for and then immediately delays claiming their own retirement benefit so that it can grow by earning delayed credits. Since you would not yet have reached your FRA before your husband reaches his age 70, having him File and Suspend his retirement benefit before his age 70 would result in a reduced spousal benefit for you and is therefore not optimal unless you needed this income sooner rather than later.
Q: I am 61 and my husband is 64. He has earned more than I over the years. We were going to have me collect SS at 62, and my husband collect at 70. I was going to collect spousal benefits at 66.
It seems that I shouldn’t collect at 62 and wait until 66, because I would receive a 75% reduction for collecting before my full retirement age of 66. Is this correct? I believe we should File and Suspend at age 66 for me and 70 for my husband.
A: Applying for benefits early has several drawbacks. If you were to file for benefits at age 62 (before FRA), the Social Security Administration will require you to claim your own retirement benefit first. As a result, your retirement benefit would be reduced by 25% of your FRA benefit (the PIA). Then, if your own PIA is less than one half of your husband’s PIA, the SSA will pay you a “spousal excess” on top of your reduced retirement benefit, but this excess will also be reduced for early claiming. The net result of all this will always be a lower benefit than what you would have received if you had waited until your FRA to make a claim.
If your own PIA is greater than one half of your spouse’s, then you will only be paid your own reduced retirement benefit and will never receive a spousal excess.
Your situation is complicated by your age differences so pursuing File and Suspend in your case is not as straightforward. Having your husband File and Suspend at his age 66 (assuming that is his FRA) is not optimal as you would then be age 63 and your spousal benefit would be reduced if you claimed it at that time.
Refer to my earlier posting for more information about this issue and spousal benefits in general.
Thanks again for you your questions. Please keep them coming.
A version of this article originally appeared in the Business Section of GoLocalPDX