Clarification on Spousal Social Security Benefits

A reader from Michigan looks for clarification on Social Security spousal benefits.

"I am a 65-year-old anesthesiologist who would like to work until I am at least 72. I don't intend to collect my Social Security retirement benefit until I am 70. My wife is 60 and was employed long enough to collect a Social Security benefit on her own work history. However, the amount will be less than her spousal benefit (50% of mine). My questions are two-fold: (1) If my wife starts collecting SS on her work history at 62 and switches to the spousal benefit at FRA (at 67), will her early collection reduce the size of her spousal benefit? (2) Will the amount of her spousal benefit be 50% of mine at FRA, or will it be 50% of mine at 70?"

If your wife were only eligible for spousal benefits and had no work history of her own, it would be less confusing because only one single component would be involved. But to understand how her work history affects the answer, you have to know how the spousal benefit is paid.

First of all, a spousal benefit pays a qualified spouse up to 50% of the working spouse's Full Retirement Age (FRA) benefit. That answers your second question: it is 50% of your Primary Insurance Amount (PIA) or your benefit at your FRA. It is not 50% of what you would be earning if you delayed claiming until age 70. So your wife's maximum spousal will be 50% of your FRA benefit, whatever that is, and will not grow because you (the working spouse) delayed filing.

As for your first question, we know the maximum of your wife's spousal benefit: half of your FRA benefit. So let's look at how it's paid.

If she didn't have any benefit of her own, it would be paid entirely as a spousal benefit. Now I said the "maximum" she could get is 50% of your FRA benefit. But she will only get that if she waits for her FRA to collect. If she collects early, the spousal benefit is reduced.

But she does have a retirement benefit. How much isn't essential for this discussion. But the fact that she has some benefit of her own means that her overall benefit will be paid in two pieces: her own benefit first, then what's called a spousal offset, or an additional amount that brings her up to that 50% of your FRA benefit.

But she has a nuanced situation here. You mention she'll be claiming early, at 62. She won't be claiming the spousal benefit at that time because when she's 62, you won't have turned on your benefit yet. (You will only be 67, and you're waiting to age 70.) So all she has access to is her own benefit which will be a reduced amount because she's claiming it early.

Now she fast-forwards to her FRA at age 67. You'll be 72 and will have been collecting for a couple of years. Whenever you file, she will have the right to collect 100% of the spousal benefit, which is – again – half your full FRA benefit. But because Social Security pays it to her in pieces, she undermined the most she could collect by claiming her own at 62. That base amount of hers will continue to be paid, plus the spousal offset.

But the spousal offset is calculated as the difference between 50% of the worker's benefit at FRA and the spouse's benefit at FRA. So they're not going to expand the offset to top her up to 50% of your full FRA benefit. Instead, she'll be awarded what her offset would have been had she waited to claim both her own and the spousal at her FRA at 67.

It may seem a little hard to follow but just take this away. If you claim either part early, your benefit is reduced permanently. She's effectively claiming her own early but claiming her spousal at her FRA. So the one component – hers – has been reduced and the spousal offset is what it is. It's fixed. The total will be a reduced overall benefit for her for the rest of her life.

Now, another possible nuance, one you didn't mention. By the time your wife reaches her FRA at 67, you'll already be 72. She would have been eligible to claim the spousal benefit the month you claimed your benefit, two years earlier. But she would only be 65. So if she claimed the spousal benefit at 65, she will not only have reduced her own benefit by claiming at 62, but the spousal offset will also be reduced by a couple of years – for claiming it at 65 instead of at 67.

People get confused because they don't realize that what they do with their own benefit will affect what they collect when they file for a spousal benefit, even if they're not taking the spousal early. They have complete control, depending on when they file. But the full spousal benefit is built out of those two pieces (the spouse's own benefit plus the offset). So if the spouse's benefit is reduced permanently for having filed early, the total will be reduced as well.

Also, there is no "catch up" or benefit from holding off filing for spousal benefits, such as waiting to 70. Delayed retirement credits are not available on the spousal benefit. That benefit would still be capped at 50% of your FRA benefit.