How do spousal benefits impact Social Security?


Commentary by Joel Harris

Last month, I touched on how working while collecting Social Security before full retirement age can have a big impact due to the income limitations test. If you recall, Suzy thought it might be a good idea to collect benefits early at age 62, even though she plans on staying in the workforce until her full retirement age at 66. Because she makes far more than the $15,120 yearly income threshold, her benefits would dramatically be reduced if she continues to collect her $40,000 annual salary between 62 to 66.

This month, I’m going to focus on how collecting spousal benefits might be a good strategy when Suzy reaches her full retirement age at 66. In our example, Roger is 64, in good health, and plans on working until at least 68. Suzy is 62, in good health, and plans on retiring at her full retirement age of 66. As it stands now, Roger is due to collect $2,000 at full retirement age and Suzy is due to collect $1,500 per month at her full retirement age. Should Suzy elect her own benefit at 66, or take advantage of the rarely-used strategy of electing spousal benefits based on the earnings history of her husband?

Under the spousal benefits provision, Suzy can elect to take up to half of Roger’s $2,000 benefit at 66. One important thing to remember is Roger either needs to be collecting his benefits or have “filed and suspended” his benefits before Suzy can take advantage of half of his benefit. You might ask yourself, why would Suzy take $1,000 (half of Roger’s) per month when her full benefit is $1,500?

If she elects to take half of Roger’s benefit at 66, her own $1,500 benefit will continue to grow under the Delayed Retirement Credits provision. Every year she waits to elect to take her own benefit, she will receive a delayed retirement credit increase of 8 percent per year until the age of 70. That being said, her $1,500 benefit will grow to $1,980 at age 70. At that time, Suzy can switch to her own benefit, which is now $1,980 per month.

So what is the break even age if Suzy decides to elect spousal benefits vs. her own at 66? Based on the figures, she will break even right around 74 years old. By taking advantage of this strategy, Suzy can potentially collect several thousands of dollars in additional benefits during her lifetime.

Social Security will play a major role in your retirement income planning. Please take the time to research the best options for your particular situation before electing your benefits.


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