Retired wage earners aren’t the only ones eligible for Social Security benefits. Wage earners’ spouses often can claim benefits, too, based on their husbands’ or wives’ earnings histories…and so can some divorcees, based on their former spouses’ earnings. “Spousal benefits and especially survivor benefits are very important for couples,” says Social Security expert Martha Shedden, CRPC, RSSA. “Especially couples where one spouse has much lower earnings than the other or no earnings at all.”
Spousal benefits not only provide an additional stream of Social Security income for retired couples, they also can open the door to claiming strategies that make it possible for savvy married people to maximize the Social Security benefits they receive.
But there is a catch: Two of the most popular spousal-benefit claiming strategies—the file-and-suspend strategy and the restricted-application strategy—are no longer available.
We asked Shedden what has changed about spousal benefits and what married couples need to know about spousal benefits today.
What Are Social Security Spousal Benefits?
A married person is eligible to claim spousal benefits based on a husband or wife’s earning history if the couple has been married for at least one year…the spouse who earned the income is already receiving his/her retirement benefits…and the spouse applying for spousal benefits is at least 62 years old and/or caring for a child younger than 16 and/or a Disabled Adult Child (DAC) if disabled younger than age 22. Note: Claiming a spousal benefit does not reduce the amount that the other spouse is receiving.
The maximum spousal benefit is 50% of the wage earner’s “primary insurance amount” (PIA). PIA is the amount a wage earner would receive if they started receiving their own benefit at their “full retirement age,” (FRA) which is 67 for most people today (born in 1960 or later.) Spousal benefits are reduced if a spouse starts receiving them before reaching FRA. Example: Spousal benefits are just 32.5% of the wage earner’s PIA if claimed immediately upon becoming eligible at age 62. Exception: The “child-in-care” spousal benefits available to certain spouses who are caring for young or disabled children are not reduced based on the spouse’s age.
There are no delayed-retirement credits with spousal benefits, which means putting off applying for these beyond FRA doesn’t increase the amount received each month. “Unlike retirement benefits,” warns Shedden, “spousal benefits don’t continue increasing up to age 70.”
When someone is eligible for both spousal benefits and a benefit based on his/her own earning history, the Social Security Administration pays the equivalent of the larger of those two benefits, not the sum of the two.
These spousal benefit rules have a huge impact on many couples’ retirements, but many couples don’t understand them. “They’ve heard of spousal rules,” says Shedden. “But they confuse spousal benefits with survivor benefits, and they misunderstand specific details about spousal benefits.”
Divorced-spouse Social Security rules: To qualify for ex-spousal benefits based on a former spouse’s earnings history, the marriage must have lasted at least 10 years and both individuals must be at least 62. The collecting spouse must not be currently married to someone else. It doesn’t matter if the former spouse has remarried. Unlike still-married couples, divorcees can receive spousal benefits even if their former spouses are not currently receiving their own retirement benefits, as long as the ex is eligible to receive those benefits and the marriage legally ended at least two years prior.
The Spousal Benefits Loophole: What Was It?
In years past, a pair of Social Security strategies offered so much financial upside for certain couples that they were sometimes referred to as loopholes. Here’s how they worked…
File-and-suspend strategy
One spouse, typically the higher earner, filed for his/her own benefit upon reaching full retirement age, then quickly requested a voluntary suspension of those benefits, potentially leaving this suspension in place until age 70. Because this wage earner had filed for benefits, the other spouse could apply for spousal benefits based on the wage earner’s earning history. Since the wage earner’s own benefit was suspended, it continued to increase each month that the suspension remained in place up to age 70. This strategy let many couples maximize the amount they received each month after age 70, while also receiving benefits before then.
Note: Anyone collecting a retirement, spousal, or survivor benefit who is still working and also younger than FRA will be subject to the Retirement Earnings Test (RET), which temporarily reduces your monthly benefit if you claim Social Security before reaching FRA while continuing to earn wages above specific annual limits.
Restricted-application strategy
A spouse who was eligible for both a spousal benefit and a retirement benefit based on their own earnings history could apply to begin receiving benefits at full retirement age but restrict that application to only the spousal benefit. The retirement benefit would continue to grow until it reached its maximum amount at age 70, at which point they would switch over to the higher retirement benefit.
How the Bipartisan Budget Act of 2015 Changed the Rules
Legislation passed in 2015 closed the door on both of those strategies. “The file-and-suspend option isn’t allowed anymore,” says Shedden. “Restricted applications aren’t allowed anymore either for spousal benefits, though that is still an option for survivor benefits.”
Tinkering with Social Security spousal benefit rules is nothing new. Rules that allowed one spouse to collect benefits based on the other’s earnings history date all the way back to 1939, but initially only wives were eligible. The rules weren’t adjusted to allow husbands to claim spousal benefits based on their wives’ earnings until 1950.
Current Rules for Claiming Spousal Benefits
Under the new rules, when someone suspends the Social Security benefits they are receiving based on their own earnings history, any benefits being paid to a spouse (and/or children) based on that earnings history are also suspended, blocking the file-and-suspend strategy.
Now when someone files for benefits and is eligible for both a spousal benefit and their own retirement benefit, they are “deemed” to be filing for both. They will receive the higher of the two amounts, which may be part retirement and part spousal, but the two are not added together and they cannot specify only receiving one. This blocks the restricted-application strategy.
The 2015 legislation didn’t end the restricted-application strategy immediately—the new “deemed filing rule” applied only to people who turned 62 on or after January 2, 2016. But a decade has since passed, and anyone who turned 62 before that 2016 cut-off date is now older than 70, too old to take advantage of this strategy.
Important: While it’s no longer possible to file a restricted application for spousal benefits, it is still possible to do so with the Social Security benefits available to widows and widowers based on their late spouses’ earnings histories. “There is still the restricted-application option for survivor benefits,” says Shedden. “That confuses people.”
Strategies for Maximizing Social Security Benefits Today
A spousal-benefit claiming option dubbed the “split strategy” remains available. How it works: The lower-earning spouse claims his/her benefit at full retirement age or potentially even earlier, while the higher-earner puts off claiming his/her benefit as long as possible, ideally until turning 70. Once the high wage earner starts to receive retirement benefits, the lower wage earner is then eligible to receive a spousal benefit “top-off” excess amount if their own benefit is less than the spousal amount at that time. This lets the couple maximize the benefits they’ll receive each month from age 70 onward while still receiving some Social Security income before age 70. Delaying the high-earner’s benefits until 70 also maximizes the “survivor” benefit that the lower-earner receives if the higher earner dies first. “Survivor benefits are a very, very important part of the equation for couples,” says Shedden. “That’s sometimes overlooked.”
No one Social Security claiming strategy is appropriate for all couples, so it is worth discussing with a financial advisor who specializes in Social Security income planning. Example: Sometimes the best option is for both spouses to delay claiming until age 70. But if one or both have medical problems or a family history that suggests a long life is unlikely, then the optimal claiming time will be earlier.
For many couples, their Social Security income is the majority, if not their only, source of income once they retire. Their primary goal isn’t maximizing total Social Security benefits but making sure they are timing their retirement and filing together. “You have to dig down and figure out ‘do they have the money they need to pay their bills?’” says Shedden. “If the couple needs the money, filing early might be worth it.”
