NEW BERLIN, Ill. (TheStreet) -- If you're close to the magic age for Social Security and married, you're probably familiar with the concept of Social Security spousal benefits. There's more income to be had, though, by having spousal benefits going in both directions: from higher-earning partner to lower-earning and vice versa.
What most already know is that for pretty much every married couples, it makes sense for the spouse with the higher wage base -- that is, the one who earned the most money throughout his or her working career -- to delay getting Social Security retirement benefits as long as possible.
Each year delaying the Social Security retirement benefit past full retirement age can result in up to an 8% increase in the benefit amount. When delaying like this, it often also makes sense for the spouse with the lower wage base to begin getting benefits at the lower rate, either at the early retirement age of 62 or upon reaching FRA. Then, when the spouse with the higher wage base begins taking the increased, delayed benefits, the spouse with the lower wage base will begin getting the spousal benefit based upon one-half of the higher wage base spouse's benefit.
But wait, there's more!
What most folks don't realize is that, while the spouse with the lower wage base is getting the reduced benefit, the spouse with the higher wage base can apply for a spousal benefit based upon one-half of the lower-wage-base spouse's benefit, beginning at the higher-wage-base spouse's reaching FRA.
While this doesn't necessarily amount to very much money, it is money to which you are entitled and should get. The spouse with the higher wage base can get this benefit from FRA up to the time election is made to begin getting the delayed benefit based on his or her own record, at age 70. At that time, the spouse with the lower wage base will begin getting the spousal benefit based upon the higher-wage-based spouse's benefit, as well.
Let's say Jane and Bob are a stereotypical couple -- Jane didn't work outside the home while their children were in school, while Bob has worked and earned Social Security credits since age 21. As a result, Jane's primary insurance amount is considerably lower than Bob's. (The roles could easily be reversed, depending upon circumstances.)
So at age 62, Jane begins drawing her Social Security retirement benefit in the amount of $666 per month (based on a PIA of $888). They have decided to delay Bob's benefit as long as possible, to when he reaches age 70. Once Jane reaches FRA, when both are 66 years old, Bob can begin drawing a spousal benefit based upon Jane's PIA (which is now $1,000). So Bob can draw a spousal benefit equal to 50% of Jane's benefit, or $500 per month.
When the couple reaches age 70, Bob applies for and begins getting his full, delayed benefit -- approximately $3,600 per month (based on a PIA of about $2,650). Jane's benefit has grown to $800 (based on a PIA of $1,000). Her spousal benefit will be based upon the difference between her PIA and 50% of Bob's PIA, or $1,325 minus $1,000, equaling $325. This is added to her own benefit for a total of $1,125.
That's all there is to it. One thing to keep in mind is that you have to trade off between the above strategy and the file and suspend strategy. You can't work both at once.
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