Cracking the Code: Mastering Social Security Spousal Benefits

Social Security is one of the richest pensions ever created. Originally designed as a safety-net program, it now provides benefits for not only retired and disabled workers but also their spouses, ex-spouses, survivors, children, and even parents. With more benefits and beneficiaries, however, the system can be complex and confusing. Misinformation is rampant, especially regarding spousal benefits.

What we’re told about spousal benefits

The most common perception of spousal benefits is that married individuals are eligible for “half” or “up to half” of their spouse’s benefit. Some articles say that if you claim spousal benefits early, a reduction will apply. But there’s no discussion of how that works, leaving many with the false impression that the reduction is the same for spousal benefits and worker benefits. It’s also widely misunderstood that “spousal” is an entire benefit of its own, when in many cases it’s a “top-off” of the benefit someone receives for their own work record.

Consulting the Social Security Administration’s Program Operations Manual System is of little help without an IV drip of caffeine. Below we demystify one of the most complex social welfare programs our government has ever devised.

Worker benefits

A worker’s full retirement benefit is known as the primary insurance amount (PIA) and becomes available at their full retirement age (FRA). See the chart here for your FRA, which is based on year of birth. Benefits may be claimed as early as age 62 or delayed until 70. For every month that benefits are claimed early, there’s a reduction of five-ninths of 1% for 36 months, then five-twelfths of 1% for every additional month.¹ Alternatively, for every month of delay in taking benefits, there’s an increase of two-thirds of 1%. If math isn’t your strong suit, just know that claiming benefits early reduces your monthly check and claiming them later increases it.

Example 1: Sam has PIA of $2,500 per month and FRA of 67. If he claims benefits at age 66, his monthly check will be $2,500 * [1 – (5/9 * 0.01 * 12)] = $2,333.33.

Example 2: Paul has PIA of $2,500 per month and FRA of 67. If he claims benefits at age 62, his monthly check will be $2,500 * [1 – (5/9 * 0.01 * 36 + 5/12 * 0.01 * 24)] = $1,750.

Example 3: Laura has PIA of $2,500 per month and FRA of 67. If she claims benefits at age 70, her monthly check will be $2,500 * [1 + (2/3 * 0.01 * 36)] = $3,100.

Spousal benefits

Spousal benefits are like worker benefits, except the reduction factor is different and there’s no increase due to delayed retirement credits. Both are discussed below, but it’s important to note that spousal benefits are based on a worker’s PIA. If the worker decides to take benefits early or late, any reduction or increase in the monthly amount does not impact the spousal benefits. The only reduction is when the worker’s spouse claims spousal benefits before their own FRA.

Example 4: Amber has a substantial work history under Social Security, and her husband Todd will collect spousal benefits. Amber’s PIA is $3,000, but she’ll wait to claim worker benefits at age 70, when the monthly amount will be $3,720. Todd’s spousal benefits will be based on $3,000, not on the increased amount.

Example 5: Scott has a substantial work history under Social Security, and his wife Alice will collect spousal benefits. Scott’s PIA is $3,000, but he’ll begin claiming worker benefits at age 62, when the monthly amount will be $2,100. Alice’s spousal benefits will be based on $3,000, not on the reduced amount. 

The reduction factor for spousal benefits is twenty-five-thirty-sixths (25/36) of 1% for 36 months, then five-twelfths of 1% for every additional month.² Therefore, the reduction for spousal benefits is worse than the reduction for worker benefits in the first 36 months (0.55 for worker vs. 0.69 for spousal).

Example 6: Charlie has no work record of his own but will have spousal benefits at FRA of 67 (Charlie’s spouse has PIA of $3,000). If Charlie claims spousal benefits at FRA or later, he’ll receive $1,500. The benefits will not be increased due to delayed retirement credits. If Charlie claims benefits early at age 64, the amount will be $1,500 * [1 – (25/36 * 0.01 * 36)] = $1,125.

Spousal top-off

Many spouses have a work record of their own, unlike Charlie in example 6. When they file for benefits, they’re electing their own worker benefit plus any difference that will get them to half of their spouse’s worker benefit, less any reductions for early claiming.³

Example 7: Jennifer has PIA of $1,000, her spouse has PIA of $3,000, and they both reach FRA at 67. Jennifer’s spousal top-off is $500, calculated as $3,000 * 0.5­­ – $1,000.

a. If Jennifer claims worker benefits at age 62, she’ll have a 30% reduction to $700. If she’s also eligible for spousal benefits, they’ll be reduced by 35%, from $500 to $325, giving her a total of $1,025.

b. If Jennifer claims worker benefits at age 62, she’ll have a 30% reduction to $700. If she’s not eligible for spousal benefits until 67 (or later), she’ll get a bump at that time of $500, to $1,200. The spousal top-off isn’t reduced or increased when it’s turned on at FRA or later.⁴

c. If Jennifer waits to claim worker benefits at FRA, she’ll get $1,000. If she’s also eligible for spousal benefits at that time, she’ll collect an additional $500, for a total of $1,500.

The fact that there are two benefits — worker and spousal top-off — is important because they can be turned on at different times and impacted by different reduction factors.

Deemed filing

The deemed filing rule means that when worker benefits are elected, spousal benefits are as well, if eligible. This begs the question: When does a spouse become eligible for spousal benefits? Answer: When the other spouse claims their worker benefits. In other words, for the lower earning spouse to receive their benefit, the higher earning spouse must delay claiming their own benefit. And, when they decide to claim their worker benefits, you’ll be deemed to have also applied for spousal benefits.⁵

Deemed filing rules are important because they may result in a reduction of the spousal top-off when a spouse is forced to receive the benefits prior to their FRA.

Example 8: Same facts as example 7. Note that each of the three cases above states whether Jennifer is “eligible” or “not eligible” for spousal benefits. This means her spouse has turned on their own benefits (eligible) or hasn’t (not eligible).

a. If Jennifer claims worker benefits at age 62, she’ll have a 30% reduction to $700. Because her spouse hasn’t turned on his worker benefits yet, she cannot claim spousal benefits at 62. If he turns on worker benefits when Jennifer is 65, she’ll be deemed to have applied for spousal benefits equal to $500 * [1 – (25/36 * 0.01 * 24]) = $417. This brings her total to $1,117.

b. If Jennifer wants to delay spousal benefits until FRA of 67, her spouse will have to delay his worker benefits until she reaches that age to avoid deemed filing. Alternatively, she could wait to begin her worker benefits.

c. If Jennifer waits to turn on worker benefits and her spouse turns his on when Jennifer is age 64, nothing will happen for Jennifer. She hasn’t applied for worker benefits yet, so there’s no deemed filing.

A claiming strategy to fit your goals

While the Social Security system is complex, it’s a very lucrative system for retirees and their families. Optimizing a benefits-claiming strategy that fits your financial goals is important and shouldn’t be left to internet searches, friends, family, or even the Social Security Administration. Believe it or not, SSA isn’t allowed to give this kind of guidance.

Mercer Advisors has a team of specialists who can help you determine when to begin receiving worker as well as spousal benefits from Social Security. As shown above, claiming them early can lead to reductions that might otherwise be avoidable. Make sure to get the timing right, for you and your spouse. Contact your wealth advisor today to learn more about the benefits you’ve spent a lifetime earning. If you are not a client, but would like more information, contact us.

¹ Social Security Benefits.

²Social Security Benefits for Spouses and RS00615.201.

³RS00202.025(A)(1) – A spouse entitled to RIB or DIB receives his or her own RIB or DIB plus the difference between that benefit and the spouse’s benefit.

⁴Pfau, Wade. Retirement Planning Guidebook, 2^nd edition, 2023, p.185.

⁵RS00204.035(C) – Deemed filing for DOB after 1/1/1954