How Will Your Social Security Strategy Affect Your Spouse?

By Matthew Frankel Markets Fool.com

It's a well-known principle among pre-retirees that the age at which recipients claim Social Security retirement benefits can affect the amount of their monthly checks. However, many people don't realize that claiming their benefit can affect their spouse's income as well. Specifically, there are a few rules all married pre-retirees should know about spousal benefits, and they should understand how these rules could influence their retirement income strategy.

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How Social Security spousal benefits work

First, here's the general concept behind Social Security spousal benefits. This part of the Social Security program is designed to provide additional retirement income to married couples in situations where one spouse did not work, or earned relatively little in comparison with the other spouse.

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Specifically, if one spouse's retirement benefit based on their own work record is less than half of their spouse's, a spousal benefit kicks in, which can make their benefit as much as half of the higher-earning spouse's.

For example, let's say that in a married couple, one spouse is entitled to a $1,600 monthly retirement benefit based on their own work record. The other spouse was a stay-at-home parent for the majority of their adult life, and is only entitled to a $500 monthly benefit based on their work history. Since $800 is half of the higher earner's retirement benefit, a $300 spousal benefit will be given in addition to the $500 standard retirement benefit, if claimed at full retirement age.

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In order to be eligible to collect a spousal benefit, the higher-earning spouse must already be collecting their own benefit, or have claimed their own benefit simultaneously. In addition, retirees must apply for their own retirement and any spousal benefit to which they may be entitled -- not just one or the other.

Early or late retirement effects

Just like regular Social Security retirement benefits, spousal benefits can be permanently reduced if they're claimed before the full retirement age of the recipient. However, the reduction percentage for spousal benefits is not the same:

Social Security Retirement Benefits

Spousal Benefits

Reduction per month before full retirement age (up to 36 months)

5/9 of 1% (0.56%)

25/36 of 1% (0.69%)

Reduction per month before full retirement age (beyond 36 months)

5/12 of 1% (0.42%)

5/12 of 1% (0.42%)

Monthly increase for delayed retirement, up to age 70

2/3 of 1% (0.67%)

None

Data source: Social Security Administration.

As you can see, unlike with regular retirement benefits, there is no such thing as delayed retirement credits for waiting to collect a spousal benefit until after full retirement age. In other words, a spousal benefit will be the same (adjusted for inflation) if the beneficiary claims it at full retirement age or waits until age 70 to claim, or applies anytime in between. Simply put, there's no advantage to late retirement when it comes to spousal benefits.

One important point to remember

As you may know, if you decide to wait to claim Social Security until after your full retirement age, your benefit will be permanently increased. These delayed retirement credits can accumulate until as late as age 70, when, if your full retirement age is 66, your benefit can be permanently increased by 32% -- a major boost in your inflation-protected retirement income.

However, since there is no such thing as delayed retirement credits for spousal benefits, and you collecting your own benefit is a prerequisite for your spouse to be able to collect theirs, this would mean that your spouse could potentially miss out on up to four years of benefits with absolutely no reward for doing so.

The bottom line is that while your own age when claiming benefits should certainly be a key factor in your Social Security strategy, it's not the only thing to consider. Specifically, if your spouse is expecting to draw a benefit based on your work record, it's rarely a good idea to delay claiming your benefit beyond their full retirement age.

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