Social Security for Couples: Yours, Mine and Ours

The economic picture isn't pretty: record-setting upheaval in the financial markets, historic federal deficits, which led to a U.S. credit downgrade and an unemployment rate stuck in high gear. Add to that riots in the streets of London and continued violence in the Middle East. Municipalities on the verge of bankruptcy. The threat of higher income tax rates. Politicians more concerned about scoring a sound bite on the evening news than in doing whats best for the country.

It all adds up to one thing: tremendous uncertainty.

It couldnt happen at a worse time for baby boomers on the cusp of retirement. With their 401(k)s and IRAs trashed by Great Recession and two market crashes in the past decade, the future is looking a whole lot scarier. Those who did the right thing (sacrificed during their working years to accumulate a nest egg to help finance 30+ years of retirement) now find their portfolios trashed. And who knows when-- or if--theyll recover.

Just as it was for mom and dad, Social Security has become an extremely important source of steady, reliable retirement income for baby boomers. The problem is, while most pre retirees understand the big picture (e.g. to get your full benefit you cant start before age 66 or later), they dont know much about the details surrounding this program. However, if you want to collect the maximum youre entitled to, the details are the key.

As I wrote earlier this year, this is especially true if you are or were married. For instance, is it to your advantage to file for Social Security benefits based on your own work record or that of your spouse, i.e. a spousal benefit? Under what circumstances can/should you switch?

To say the least, the rules can be confusing.

For example, consider a fictitious married couple named Mary and Herb. They each had jobs in the paid workforce and earned the required credits to independently qualify for Social Security. Both Mary and Herb turn 62 this year, making each eligible to start collecting benefits. However, if they do so, their benefit will be reduced because they are younger than their full retirement age of 66.

Would it be more advantageous if Mary filed for Social Security based on her own work record or for spousal benefits based on Herbs earnings?

According to Dorothy Clark, senior public affairs specialist with the Social Security Administration and a 35-year veteran of the agency, if Herb is entitled to Social Security when Mary files (meaning he has reached at least age 62 and has applied to start receiving benefits) she must file for both types, i.e. those based on her own work record as well as spousal benefits. Mary will receive whichever represents the higher amount, but not a total of both. (Even if she qualifies for a higher benefit based on Herbs earnings record, part of the amount will be designated as coming from what she, herself, earned.)

On the other hand, if Mary files to start Social Security benefits before Herb is entitled to them, her only option is to receive benefits based on her own work history. In other words, until Herb is entitled to Social Security, Mary is not entitled to spousal benefits based on Herbs work record.

Here are a few additional rules to keep in mind:

--If your full retirement age is 66 and you file to receive Social Security based on your own work record starting the month you turn 62, your check will be 25% less than at age 66.

--If you file to begin spousal benefits before your full retirement age, your check will be reduced by as much as 35% compared to what you would get if you waited until you reached age 66.

--To see how your benefit is affected by the age at which you file, visit here

Now lets see how these rules apply. Well assume that Herb was the higher earner and that his benefit is greater than Marys. They both turn 62 this year.

Example A: Mary is three months older than Herb, she was born in September and he was born in December.

Answer: If Mary applies to begin Social Security benefits in September, she can only file based on her own earnings because she is not yet entitled to a spousal benefit. She will be entitled to this when Herb begins receiving Social Security- either in December or at a later time.

Mary can choose to wait until her full retirement age (66) to re-file for a spousal benefit. This would enable her to receive the maximum amount: 50% of the benefit Herb is scheduled to get at his full retirement age (66). If she applies before this, she will receive less than this amount. In any event, Clark emphasizes that this is not automatic. Mary must file for spousal benefits in order to receive them.

Example B: Herb is four months older than Mary. He began receiving a Social Security check in May. This makes Mary entitled to spousal benefits when she turns 62 in September. Whenever she applies for Social Security, Mary must file for both her own benefits and spousal benefits. If Mary applies to begin receiving Social Security in September, her spousal benefit will be permanently reduced by 35%. She would have to delay filing for any Social Security benefits until she reaches age 66 in order to receive the full 50% spousal benefit.

This is just the tip of the iceberg. Visit the Social Security website to learn more. Before you pull the trigger on starting benefits, make an appointment to speak in person with a counselor at your local Social Security office so you know your options and their consequences. Your decision will literally affect the rest of your life.

Ms. Buckner is a Retirement and Financial Planning Specialist at Franklin Templeton Investments. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content. 

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