Retirement Answers

Jacob: 00:01

One of the confusing elements of Social Security is gonna be the spousal benefit provision, which allows you as a married person to claim benefits based on your spouse's credit earning history, even if you yourself do not have enough credits or if maybe your benefit is just simply not as high as your spouse's. Welcome to Retirement Answers, a podcast built to answer your most pressing retirement questions. If If you're someone who's either thinking about retirement or already in retirement, well, you're in the right place. Hey there. My name is Jacob Duke, and each week, I'll be walking through different tips and strategies to help you succeed in retirement.

Jacob: 00:38

So let's go ahead and get started with today's show. Hey friends, and welcome back to another episode of Retirement Answers. As always, my name is Jacob Duke. I'm a certified financial planner, and, I'm glad you're here. I'm glad that you're tuning in listening, and I hope you find value in today's show and just the podcast in general.

Jacob: 00:59

We talk about all things retirement and hopefully answer, your pressing retirement questions. So, I appreciate you being here. And today we're gonna be talking about Social Security spousal benefits, which I know is a really important or a big, big topic for most retirees because, there's a lot of confusion around that. And we're curious, hey, what are you entitled to when when it comes to spousal benefits for you, based on your spouse's earning credits? So that is what we're talking about today.

Jacob: 01:26

Some of the confusion that comes into play there, what you need to know about it. And then we're also gonna be walking through an example so that you can get a good understanding of how this works. And, also be sure to stay to the end because I've got important information for divorcees and how this will or will not apply to you in terms of the spouse benefits you could claim based on your ex spouse's earning credits. So before we jump into all of that, I wanted to feature this week's listener review. And, this comes from s norita one zero zero three.

Jacob: 01:55

And, she gives the show five stars and she says that I just happened upon this podcast since I'm just ready to retire. They're great relatable topics and examples I'm going to recommend. So, thank you so much for that rating and review. I really appreciate it. And, if you're enjoying the show and find it valuable, I'd really appreciate it if you could give a rating review as well, and you never know, you might be featured here on the podcast.

Jacob: 02:17

So with that being said, let's go ahead and jump into today's topic. All right, so whenever it comes to social security, it's obviously one of the most important kind of things that we look at from an income standpoint for most retirees. It's one of those things that we have to not necessarily rely on, but we're really glad that it's there and many people are actually relying on it. So it's really good news, but it is often very confusing. And one of the confusing elements of social security is going be the spousal benefit provision, which allows you as a married person to claim benefits based on your spouse's credit earning history, even if you yourself do not have enough credits, or if maybe your benefit is just simply not as high as your spouse's.

Jacob: 02:54

So we're gonna walk through all the things that you need to know to make sure you understand this correctly and you're not confused or make some of these same mistakes that I'm gonna be talking about here in a second. But one of the biggest mistakes that many people make is they just assume based on what they've heard or read or kind of halfway understood is that they think they can get 50% of their spouse's benefits that they're receiving. So that's one of the biggest mistakes that I hear often is people just think, hey, I'm gonna get 50% of whatever my spouse is already receiving. And if that's more than what I would get on my own, great, I'm gonna get a higher benefit. And that may end up being true, but there are a few things that we have to think about and consider beforehand to get that full 50%.

Jacob: 03:31

So number one, I wanted to say off the bat that the opportunity to get spousal benefits is a valuable thing for you as someone who perhaps either just didn't work or maybe you were a stay at home spouse and took care of kids, which maybe we could all agree that that is probably a harder job than actually going to work every day. So credit to you, but the Social Security Administration and IRS does not recognize that as work that you earned an income. Therefore you do not get social security credits for that. So you do not have any benefits perhaps if that was the case. So, or maybe your benefit was really low and your spousal benefit, whatever you would receive based on your spouse's earning credits would be higher than your own.

Jacob: 04:08

So this is a great thing, number one, right? We get to get more money based on our spouse and what they earn throughout their career, and the opportunity to have a social security income is not going away simply because we as one spouse did not work. So it's a great thing, number one. Now the real question is who qualifies for spousal benefits? So here are the things that you need to know in order to understand, hey, am I actually gonna be able to get spousal benefits?

Jacob: 04:31

Well, number one, you have to be married, obviously this is for spouses and you have to be married for at least one year to be able to claim spousal benefits of someone else's earning record. The second thing is the spouse that you're claiming based on, they have to already be receiving their benefits. And the third thing is that you must be 62 whenever you start to claim your spousal benefits. We're gonna talk more about why that is the case here in a second, but there is one exception, or a couple exceptions here to that age requirement. And the first one is that if you're caring for a child who is 16 or younger, you can qualify for the Spousal Benefits until that child reaches age 16, and then your Spousal Benefits would go away, and perhaps you could either delay your own benefits or start your own at that point, but regardless, let's say that you have a child that's 12, well for four years until they reach age 16, that means you can get a spousal benefit regardless of your age, if your spouse is already receiving their benefits.

Jacob: 05:26

And the second one is regardless of your child's age, if you have a disabled child, you can receive spousal benefits. If your spouse is obviously taking their benefits and you're still not of age 62, you could still get benefits in that situation as well. So those are two exceptions. So just a quick recap, you gotta be married for at least a year, your spouse has to be receiving their benefits, and you must be age 62. So that's the rules for being able to qualify for spousal benefits and have that provision available to you.

Jacob: 05:54

And so when you hear this, you might be thinking to yourself, well, perfect, I'll just start taking my spousal benefits at 62, and then I'll delay my own benefits until full retirement age or later so that I can keep building up a larger benefit for myself. And in theory, that's a great idea. Like that's what I would do too, but the Social Security Administration will not allow that. And the reason for it is you technically can't be getting a spouse benefit until you have started receiving your own. And I'll talk more about that and explain why that is in a second, because it gets even more confusing, but this is what the Social Security Administration calls a deemed filing.

Jacob: 06:26

As soon as you want to begin taking spousal benefits, technically that means you're filing for your own because just really quickly, how they actually calculate this on the back end is they don't give you a percentage of your spouse's benefits. What they do is they give you your own benefit first, and then if your spousal benefit, what you're entitled to there is higher than your own, they'll tack on the difference. So for example, if your spousal benefit could be a thousand dollars, but your own benefit is only $750 Well, number one, the first thing they're gonna pay you is the $7.50 for your own benefit. And then instead of another thousand, they're gonna tack on $2.50 to make you whole. So it's not like you just get your own benefit or the spousal benefit, you technically always get your own benefit and then whatever difference is left over that you're entitled to from a spousal benefit standpoint, that is then added on to what they're paying you.

Jacob: 07:13

So that's what I mean by a deemed filing. They're technically saying you are not able to take a spousal benefit now and then continue delaying your own benefit, which would result in a larger benefit on your own credits in the future. So you can't do that. You actually have to say I'm filing for my benefits now, and then if a spousal benefit is greater than my own, I'll receive the additional amount on top of my own that I'm due. So all those ideas, they're really good ideas and you're really smart for thinking of them, but the Social Security Administration has definitely thought through those as well and has found ways to close-up any loopholes there to make sure people are not necessarily gaming the system.

Jacob: 07:50

So, unfortunate, but it is the case. So then you maybe you're thinking yourself, you've heard a friend talking about, you know, Hey, you get 50% of your spouse's benefits. If that's more than your own, then perfect. You're getting higher benefits. So to you, if you're not actually able to delay your own benefits into the future to get a higher benefit while you're getting your spousal benefits, well, to you, you might be saying to yourself, well, I guess it doesn't really matter when I start the spousal benefits because I am just gonna get 50% of what my spouse is receiving.

Jacob: 08:17

Right? And this is the biggest misunderstanding that I hear often talked about or quoted in conversations or whenever people come to me with questions, they mentioned, hey, I heard that I get 50 of my spouse's benefit. That might be true, but there's a few things we have to walk through first. That's what we're gonna kind of talk through now, because the keyword here, you know, the Social Security Administration says on their website, it says as a spousal benefit, you're entitled to quote up to 50% of your spousal benefits. And the keywords there are up to, right?

Jacob: 08:45

That's the maximum amount, but it could be lower than that because it's really based on when you file for your own benefits, right? So if you take your benefits at 62, then technically you're not going to get 50% of your spouse's, You're going to get 32 and a half percent of your spouses. Right? So by taking your own benefits early, number one, you're reducing your own benefits based off what your PIA or your primary insurance amount would be. You're reducing that by about 30%.

Jacob: 09:13

And then also you're cutting into potential spousal benefits that could be, you could be entitled to going from 50%. If you decide to take your benefits at full retirement age, that's whenever you can get a 50 of your spouse's, if you delay your own benefits until full retirement age. But if you don't take it at full retirement age, and let's say you take it at 62, that means you're reducing your spouse's benefits from 50% all the way down to 32.5, and if you decide to take it anywhere in between 62 and 67, assuming that 67 is your full retirement age, then you will obviously be below 50%, but it could be higher or would be higher than that 32 and a half percent incrementally each year. So, just know that the keywords here are you could get up to 50% of your spouse's benefits. That's if you delay your own benefits until full retirement age for you.

Jacob: 10:02

Okay. So, one of the other things here that I wanted to mention is that it doesn't matter necessarily when your spouse takes their benefits. It only is determined based on when you take your own. Okay, so one of the other things that a lot of people are confused about often is that whenever I take benefits based on a spouse's benefits, I'm getting half, let's say of what they're receiving. And that's not entirely correct either.

Jacob: 10:26

You're actually getting half of their primary insurance amount. So let's walk through an example here, just kind of dive into what this might look like in action in real life, and then you can use these different thoughts to kind of maybe figure out what your spouse benefit would be, or kind of help you determine when and how you take your own benefits within your household. So, let's just say that the husband is the higher earner. Okay. Just for simplicity sake, it doesn't happen this way all the time.

Jacob: 10:50

So just to be clear, but historically that is the case. So the husband is gonna be the higher earner in this situation. We're gonna say that he has a $3,000 a month PIA. So primary insurance amount. He is 65 currently, and he's already taking his benefits.

Jacob: 11:06

And because he took his benefits early, he's actually receiving $2,400 a month and not the $3,000 a month he would get at 67 if he had taken it then. Okay, so that's the husband. The wife, her PIA would be $1,200 per month. That's at full retirement age and she is currently 62 and she's not yet started her benefits. So the question from the wife is, can I start my benefits right now and get 50% of the spousal benefits?

Jacob: 11:31

So we're going to cover some of the things we just discussed in this example, so you can really get a picture of this in real life. And the answer is, is no, she cannot start them right now and get 50% of his PIA by taking her own benefits or getting spousal benefits at 62, which is her current age. She would only get 32 and a half percent of his primary insurance amount, which remember is $3,000 So 32 and a half percent of 3,000 is $979 a month that she could get on a spousal benefit if she took them right now today. Now remember her primary entrance amount at 67 is $1,200. So it's not that far off, but if she takes her benefits at 62, remember this is a deemed filing.

Jacob: 12:11

If she wants to get the spousal benefit of nine seventy five, that means that she's technically filing for her own benefits as well. So she would be taking her benefits at 62 and now she would be doing so at a 30% reduction based on her PIA. So that means if she took benefits at 62 right now today, instead of $1,200 what she could get at 67, she would now be getting $840 a month on her own benefit here at 62. So she would get $840 on her own, but then she's entitled to up to $975 a month based on her spousal benefits. So the difference there is about $135 that she would get, added on to her own benefits to make up that full $9.75.

Jacob: 12:54

Remember, she always gets her $840 a month that she's entitled to, but then anything above that that she could get from a spousal benefit that will be added on. And so that would be around $135 that could be added onto her $8.40 reaching $9.75 total. So she would definitely benefit from the spousal benefits if she decided to take her benefits right now today, she would actually get more based on the spousal provision as opposed to just her own, but she would be reducing her own and her spousal benefit percentage forever by taking those at 62. So instead, she could do is she could say, I'm going to delay my benefits until 67. I'm not gonna receive anything.

Jacob: 13:34

I'm not receiving a spousal benefit nor my own until 67. At which point she would be entitled to 50% of his primary insurance amount, which remember going back to the husband's amount at full retirement age, it would have been $3,000 a month, remember we're basing it off his PIA and not what he's actually receiving, which currently he's receiving 2,400, that's often a misconception. So we will be basing that on the $3,000 a month instead of what he's getting. And so half of that would be 50% of 3,000 equals 1,500. Now remember her PIA at 67 would be 1,200.

Jacob: 14:09

So there's a $300 difference there as opposed to only a $135 difference. So that's a monthly increase by delaying her benefits until 67, and two, another point I wanted to make there is whenever we have someone that's already 62, and I talked about this in a previous episode regarding COLAs, the husband's PIA is gonna be higher than $3,000 by the time that she gets to 67, okay. And so what's gonna actually happen there, she's still gonna get 50% of his PIA, but his PIA will actually be higher after we factor in the COLAs. So just know that it will be technically these numbers are not right, Her her benefit on the spouse benefit will be more than what I'm quoting you, but just to keep the math really simple, she would get 50% of 3,000, which is 1,500, and that's more than her $1,200 a month benefit she would get at 67. So by delaying her own benefits until 67, she would get $1,500 a month instead of $9.75.

Jacob: 15:07

And that's for the rest of her life. And therefore the cost saving adjustments will be impacting that even greater, right? So $525 more a month by delaying it five years. Now, she decides to take it anywhere between 62 and 67, then she would obviously get less than that $1,500 per month, but it would still be more than $9.75 based on if she took it right now today. So hopefully, that example maybe helps you understand a little bit more about how they calculate, spousal benefits and how it all kind of works together.

Jacob: 15:38

So that's just an example, but couple of things just to remember here is that it doesn't matter when the husband took his benefits because the spouse benefits are based on the PIA, the primary insurance amount, and not how much he is actually receiving. She can't get 50% of his benefits. If she takes her benefits early, she will get a reduced amount, which the minimum amount there is 32.5% of his benefits. So anywhere between 32 and a half and 50% is what she could get from a spousal benefit depending on when she files for her own. And if she waits until full retirement age to start her own benefits, she would get that 50% of his.

Jacob: 16:15

So that's kind of, I guess a quick rundown and example of what the spousal benefit calculations look like, how it works, and just know that at the end of the day, you don't necessarily always get 50% of your spouse's benefits. And depending on the difference between your benefits and your spouse's benefits, the spouse benefit provision might not be even be helpful for you, right? So typically it's gonna be helpful for those who have a great disparity between their own benefits. And in this example, you know, the husband has $3,000 PIA and the wife has a $1,200 PIA. So that means that this couple, it might work out, but if you've got a $3,000 PIA and then a $2,500 PIA, well, the spouse benefits are never gonna be helpful, right?

Jacob: 16:52

Because everybody's gonna be able claim on their own earning credits and their own benefits, and the spouse benefits are just never gonna come into play. So hopefully this is a helpful example for you. And one point that I did wanna make here and just kind of speak to divorcees and how this works for ex spouses and what you are or are not entitled to, here are the things you kind of need to know if you're divorced and you're curious if you can claim a spouse benefit on an ex spouse. So the first thing you have to know is that you have to have been married to them at least ten years. So there is a timeframe requirement.

Jacob: 17:23

You have to have been married to a total of at least ten years. The second thing is that you cannot be remarried, right? Because if you're remarried, now you can claim a spousal benefit based on your new spouse as opposed to your ex spouse. So if you're not remarried, you can still claim based on an ex spouse's benefits. And you also have to be at least 62 years of age, like we talked about before, that requirement is still there.

Jacob: 17:43

And your ex spouse does not have to be receiving their benefits, but they have to be entitled to collect their social security benefits, which basically means they also have to be age 62. Now there is a nuance here to this point. You can only claim whenever they're not taking their benefits if the divorce is two years old. So it has to have happened at least two years ago, and if they're still not taking their benefits at that point, that's whenever you can file for a spousal benefit. Now, if they're already receiving their benefits, the two year rule is not important, it's waived.

Jacob: 18:14

So just know that if you meet all these other requirements, you were married for ten years, you've not remarried, you are at least 62, they're at least 62, you can claim based on their benefits, even if they're not yet receiving them, but you have to have been divorced for at least two years. And just like I mentioned a second ago, that two year rule is waived. If they're already receiving their benefits, then you can start immediately claiming those spousal benefits based on an ex spouse. So if you're divorced, hopefully this explanation and kind of rules that clarify what you're entitled to there and can be helpful for you. So, so this is, I guess what I've labeled the complete guide to Social Security Spousal Benefits, and maybe it's not fully complete.

Jacob: 18:52

I'm sure there's so many other nuances or things that could come into play, but these are the things that I thought were important for you to know and kind of understand as you kind of evaluate, you know, whether or not a spousal benefit would be helpful for you and your family in your situation. So that's kind of the primary rules. You've got be at least 62 in order to get a spousal benefit. Your spouse that you're claiming based on has to already be receiving their benefits and you must be married for at least one year. So those are the three simple things.

Jacob: 19:18

Remember that you can get up to 50% of your spouse's benefits, but it could be reduced all the way down to 32 and a half, depending on when you decide to take your own benefits. And you cannot delay your benefits while receiving a spousal benefit. They have to happen at the same time. You must start your own benefits in order to get a spousal benefit. So thank you so much for tuning in to this week's episode of Retirement Answers.

Jacob: 19:41

Hope it was valuable for you. If it was, again, leave a rating and review that helps me know that I'm doing a good job in putting out content that's helpful, but then also helps other people find the show. So other than that, I hope you have a great week, and I look forward to talking with you again right here next week. Hey, it's Jacob again, and I wanted to extend a quick offer to you. If you have a question and you would like to have it answered here on the show, please email me at jacobretirementanswers dot net.

Jacob: 20:08

And I'd love to answer that question for you right here on the show. Also, wanted to remind you that nothing discussed in today's episode is meant to be financial, legal or tax advice. Retirement Answers is for educational purposes only. Thanks for tuning into this week's episode. I look forward to talking with you again next week.