How to handle Spousal Social Security benefits

Spousal Benefits

A spousal Social Security benefit is one that is based on not on a person's own earnings, but on those of their spouse. A spousal benefit is based on 50% of the spouse's PIA (primary insurance amount), reduced if the person receiving the spousal benefit claims Social Security before normal ("full") retirement age. 

Note that spousal benefits are not increased for delays past full retirement age. The reduction rate for spousal benefits for the first 3 years before full retirement age is higher than for a person's own benefits (11.5% per year spousal vs 6.67% per year non-spousal). Reductions in benefits for years beyond three years before full retirement age are the same for spousal and non-spousal benefits (5% per year).

Examples

Example A: Spousal Benefit Only

Let's examine a situation where John has a primary insurance amount (PIA) of $2000 and Mary has no Social Security work history (PIA: $0). Assuming that Mary is eligible for Social Security, we enter this information as seen below. (Entering $0 for Annual Income, Benefit at 62, Benefit on Specified Date, or Earnings history will also work.)

After clicking "Calculate Options", you will see that Mary's Social Security benefit is $1000 on and after her full retirement age. Before her full retirement age, Mary's benefit is reduced. Points before John's claiming date will appear to have a $0 benefit on this screen. However, if you were to choose such a claiming date, the plan itself will show the correct spousal benefit beginning once John begins to receive Social Security.

Example B: Benefit Rises when Spouse Claims

Now let's assume Mary has a PIA of $500. Enter this information and click "Calculate Options". You will now see a non-zero benefit for periods before John's claiming date but the same values as seen above once John has claimed. If you choose to begin Mary's Social Security before John's, you will see Mary's Social Security benefit rising when John's benefits begin.

"Break-Even Not Possible"

In planning situations that involve spousal benefits you will sometimes see the message: "Break-even not possible" in the "Break-even age" field. This means that income forgone through a delay in Social Security claiming will not be recuperated before age 120 (or perhaps ever).

Here is a typical situation that leads to this situation follows. Mary's PIA is $3000 and John's PIA is $500. John's spousal benefit will be $1500 if he claims at full retirement age, but there is no benefit to waiting past this point. In fact, even if he were to claim before this point and receive his own benefit until Mary's benefit begins, there may be no benefit to waiting, depending on Mary's claiming date.

File-and-Suspend

Though in the past other claiming strategies made spousal benefits more accessible, Income Lab's Social Security section only treats spousal benefits as available once the spouse has begun to receive their own Social Security benefit.

Prior to the Bipartisan Budget Act of 2015, there were ways to take spousal benefits to begin either before someone's own benefits or the spouse's benefits.

• File and Suspend: In this strategy, someone could file for benefits, making their spouse eligible to receive spousal benefits, but then suspend their own benefits, allowing those benefits to grow through deferral credits. In this situation spousal benefits could begin sooner than the benefits on which those spousal benefits are based, allowing spousal benefits to be received while the other benefits get a future boost through deferral.
• Restricted Application: 

After April 30, 2016, File and Suspend was no longer possible. The Bipartisan Budget Act of 2015 changed the rules so that if someone suspends their benefits, all benefits tied to that work history are suspended. This means there is no way for a spousal benefit to be received on a work record where the primary benefits are not also being received.

The Bipartisan Budget Act of 2015 also phased our Restricted Application. Those born on or before January 1, 1954 still had access to Restricted Application, but those born after this date do not. Therefore, if someone begins Spousal benefits, they will also receive benefits based on their own work record. This is called "Deemed Application". Because those who were born in 1954 turned 70 in 2024, Restricted Application is now a thing of the past - it is not available to anyone under 70.

Because of these two changes, now more than 10 years old, the following are true.

• No one can receive a spousal benefit if the spouse is not also receiving their benefit.
• No one can receive a spousal benefit without also receiving their own benefit.

If you need to model other situations, please enter your Social Security cash flows under the "Other Income" section of the "Cash Flows" tab and choose "Social Security" for each cash flow's tax treatment.