Question: My wife and I are the same age. She hasn't worked much and she qualifies for a reduced Social Security benefit, maybe $400 per month, at the end of 2018 because she will be 62. I think if she waits until she turns 66 the benefit would be around $600 per month. Here's our question: Does it make sense for her to take the reduced benefit now and then apply for half of mine when I start taking benefits at full retirement age? And if she does, how much of a reduction will she take on the half of my benefit when she turns 66½ by taking her own benefit early at 62?
Answer: Rob Kron, the head of investment and retirement education for BlackRock, offered this response:
Your question highlights the complexities associated with both understanding the options available and arriving at a sound strategy based on your unique circumstance. While I would need more information to offer a sound strategy, I can help improve your awareness of the options.
You correctly pointed out that by taking an individual benefit early, it will be reduced. Also implied in your question was the realization that a spousal benefit can't be collected until your partner files for their individual benefit. So, once you, the husband, files for your benefit, your spouse will then be eligible for a spousal benefit.
To calculate the amount your wife would be able to collect, the following is needed:
-- Your full retirement age (FRA) and primary insurance amount (PIA).
(Your PIA is the individual benefit you would be eligible to receive at FRA. Your FRA is based on your year of birth. Anyone born between 1943 and 1954 has an FRA of 66. For each year after 1954, you add two months to get your FRA. People born in 1960 and later are currently capped at an FRA of 67.)
-- Her FRA and PIA.
Based on the information you included in his question, I will make the following assumptions:
Your PIA is $2,500 and FRA is 66 and four months (born in 1956).
Your wife's PIA is $600 and her FRA is the same, 66 and four months.
When you are entitled to both an individual benefit and a spousal benefit, you essentially receive the larger of the two. If you collect early however, it is a bit more complicated.
If the spousal benefit is larger than your PIA, the Social Security Administration calculates the difference between the two. A spousal benefit is equal to 50% of your partner's PIA. Fifty percent of $2,500 is $1,250. So, $1,250 - $600 = $650. This is done because spousal benefits are penalized more than individual benefits when collected early.
If she took her individual benefit at 62 she would be able to collect $440 a month (a 26.67% reduction). If you had filed for your benefit, your wife would be eligible for the spousal benefit and forced to collect it as well. The SSA has something called the "deemed filing rule." If you collect your own benefit and are eligible for a spousal benefit, they deem that you file for both.
Your wife's spousal benefit would be reduced by 31.67% down to $444. Therefore, she would get a check for $884 - $440 from her benefit and $444 from the spousal benefit.
If you haven't filed for your individual benefit yet, your wife won't be eligible for the spousal benefit at 62 and therefore can't collect it when she starts her individual benefit. Once you do file for your benefit, your wife will become eligible for the spousal benefit and must collect it (remember the deemed filing rule). If your wife is at FRA when she becomes eligible for the spousal benefit, it won't be reduced because she won't be collecting it early. So, the $440 individual benefit she started collecting at 62 would increase by $650 (the difference between the spousal benefit and her PIA) to $1090. She won't be able to collect the full $1,250 because she took her benefit early.
Spousal benefits do not increase if collected later than FRA. Individual benefits increase by 8% for each year you defer past FRA (up to a maximum age of 70). Because you and your wife are the same age, if you decided to wait until 70 to collect a larger individual benefit, your wife would have to wait until then to collect the additional $650 spousal benefit. While you would be rewarded for waiting, she will not.
As mentioned earlier, I can't suggest a strategy without knowing more about you and your wife's unique situation. Many people struggle to arrive at an informed decision regarding the Social Security purchase they have been making their entire working lives. I would strongly suggest talking to a financial adviser, who not only can help you understand your options, but evaluate the decision within the context of your overall retirement plan.
Got questions about the new tax law, Social Security, Medicare, retirement, investments, or money in general? Want to be considered for a Money Makeover? Email Robert.Powell@TheStreet.com.
Question: My wife and I are the same age. She hasn't worked much and she qualifies for a reduced Social Security benefit, maybe $400 per month, at the end of 2018 because she will be 62. I think if she waits until she turns 66 the benefit would be around $600 per month. Here's our question: Does it make sense for her to take the reduced benefit now and then apply for half of mine when I start taking benefits at full retirement age? And if she does, how much of a reduction will she take on the half of my benefit when she turns 66½ by taking her own benefit early at 62? Subscribe for full article
Get Access to Our Exclusive Content
Already subscribed? Log In