Bewildering Benefits

The Wall Street Journal

Confused about Social Security and what spouses can get? You aren't alone. Here are some answers.

Our cover article in the November issue of Encore, "The Baby Boomer's Guide to Social Security," generated hundreds of emails and questions from readers. The bulk of those questions involved "spousal benefits," an important -- and bewildering -- subject for many people approaching retirement.

In a nutshell: When you begin receiving Social Security, your wife or husband may also qualify to receive a check based on your earnings. That's a spousal benefit. Confusion arises when couples discover that a slew of variables -- including "full retirement ages" and earnings records -- affect the benefit's size and availability.

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What follows are answers to some of the most common spousal-benefit questions received by us and by Social Security.

One note: Several of the questions involve a wife who is younger than her husband and whose lifetime earnings are lower. The answers would be the same if the roles were reversed; all Social Security rules apply equally to women and men.

Q: Can I get benefits based on my spouse's earnings if my spouse hasn't yet filed for Social Security?

A: No. You can't get spousal benefits until your spouse has claimed Social Security. Starting at age 62, though, you can always apply for benefits based on your own earnings.

(Speaking of filing early for benefits, Social Security calculates your benefit so that, whether you file early or late, you will -- at least in theory, based on life expectancy -- receive about the same total payout over your lifetime. That said, there can be advantages and disadvantages to taking benefits before full retirement age. See a good discussion of this on the Social Security Administration's Web site: ssa.gov/retire2/otherthings.htm.)

Q: My husband, whose earnings exceed mine, is already collecting Social Security. Can I get a reduced benefit, based solely on my earnings, at age 62 -- and then switch to a full spouse's benefit at my full retirement age?

A: No. When a wife files for a reduced benefit based on her earnings, Social Security checks to see if she is also eligible for a spousal benefit. If she is -- and if her husband is already collecting benefits -- the wife, in Social Security's eyes, is "deemed to have filed" for both her benefit and the spousal benefit, says Dorothy Clark, a spokeswoman for the Social Security Administration.

In short, if you are under your full retirement age, and if your spouse is already collecting benefits, you can't cherry pick the benefit you want. The good news: You generally will receive the higher of the two.

Q: Can I claim spousal benefits at age 62 based on my husband's earnings -- assuming he is already collecting Social Security -- and then claim benefits at my full retirement age based on my earnings?

A: No. This is a variation of the preceding question. Again, when you first file for benefits, Social Security will check to see if you are eligible for your benefit -- and a possible spousal benefit. And again, you generally get the higher of the two.

Q: My husband, whose earnings exceed mine, hasn't yet filed for Social Security. Can I claim reduced benefits at age 62 based on my earnings -- and then step up to a spousal benefit when my husband retires?

A: Yes, you certainly can do this. But many people think -- because of a rule we'll discuss in a moment -- that the lower-earning spouse, when he or she "steps up," will end up with half of the higher-earning spouse's Social Security benefits. And that's not always the case.

Here's the rule (which appears in various forms in several Social Security publications and on the agency's Web site): "Even if he or she has never worked under Social Security, your spouse at full retirement age can receive a benefit equal to one-half of your full retirement amount." The key phrase is "at full retirement age." Those words tend to get overlooked or misunderstood.

The agency goes on to state: "Your spouse can begin collecting...benefits as early as 62, but the amount will be permanently reduced."

Let's see how this might play out.

Bob, based on his earnings record, is scheduled to receive $1,800 a month from Social Security at his full retirement age. His wife, Carol, based on her earnings record, is scheduled to receive $800 a month at her full retirement age. (You can find a chart with your full retirement age at ssa.gov/retire2/retirechart.htm. Formerly pegged to age 65, the threshold increases gradually until it hits 67 for workers born in or after 1960.)

If Carol waits until her full retirement age to claim Social Security -- and assuming that Bob has claimed Social Security -- she will get a "combined benefit." That means she will get her own $800 benefit, plus a spousal benefit. That spousal benefit amounts to whatever is needed to get Carol to half of Bob's benefit. In this case, she would receive an additional $100, which would leave her with a $900 payout -- or half of Bob's.

The key: Carol filed for Social Security at her full retirement age. Now, let's return to the original question, where Carol wants to jump in the pool early (at age 62), and Bob hasn't claimed benefits.

If Carol applies for Social Security, based on her earnings, before her full retirement age, she will receive a reduced benefit. (You can find reductions in benefits for claiming Social Security before full retirement age at ssa.gov/retire2/agereduction.htm.) In this case, Carol will receive $600 a month. This becomes her "base" benefit.

Bob, at some point, will file for his benefits. When he does, Carol becomes eligible for a spousal benefit and, thus, an increase in her monthly check. The size of that increase, however, will depend on Carol's age at the time that Bob claims benefits.

Here are two scenarios; in both, Carol has already filed for benefits based on her earnings, before full retirement age.

Scenario No. 1: If Bob claims his benefits after Carol reaches her full retirement age, Carol will get the same $100 spousal benefit mentioned above. (Social Security will calculate this number based on Bob's expected benefit at his full retirement age.) And the $100, in this case, will be combined with the reduced benefit of $600 that Carol has been receiving -- for a total of $700.

Scenario No. 2: If Bob claims his benefits before Carol reaches her full retirement age, Social Security will reduce her spousal benefit (set initially at $100) by an amount depending on the number of months before she reaches her full retirement age. (To calculate the reduction, go to ssa.gov/retire2/near.htm and click on "Effect of early retirement (spouse).") That figure will be added to the $600 base Carol is already receiving.

The point: In both scenarios, Carol doesn't reach the $900 benefit that she would have received if she had waited until her full retirement age to begin collecting Social Security.

Q: How can a wife and husband maximize their Social Security benefits over their lifetimes?

A: Recent studies indicate that a couple can maximize their payouts over time if the lower-earning spouse begins collecting Social Security as early as possible (age 62) and the higher-earning spouse waits until age 68 or beyond to start benefits. (You get your largest possible benefit by waiting until 70.)

Indeed, a peculiarity in Social Security's rules allows for some creative strategies in this area. Consider the following example, provided by Steve Potter, a retired public-affairs specialist at Social Security:

Let's say Ted and Alice are the same age. He's eligible for a $2,000 benefit at his full retirement age; she's eligible for $1,000 at hers. Alice claims benefits based on her earnings at age 62 and gets $750; Ted, meanwhile, is considering waiting until age 70, to try to maximize their benefits. The problem is that 70 is a long time to wait to start receiving benefits.

At full retirement age, though, Social Security gives a person two choices: You can take your own benefit, or -- if eligible -- you can collect just a spousal benefit, and then claim your own benefit at a later date. Thus, if Ted (at full retirement age) takes his spousal benefit based on Alice's earnings, Social Security would award him $500, or half of Alice's projected benefit at her full retirement age. Then, at some future date, Ted can ask Social Security for benefits based on his earnings. (At age 70, Ted would qualify for about $2,640 a month.)

That option -- of taking just a spousal benefit at full retirement age -- takes some of the sting out of Ted's desire to get the largest benefit possible at age 70. Rather than going three or four years without any money from Social Security, Ted can claim a spousal benefit -- and get $500 a month, in this example -- and still be able to claim his own benefit at age 70.

Q: Is there a maximum benefit, or ceiling, for a married couple? If a husband and wife each qualify for a maximum benefit, will each receive the maximum benefit?

A: In 2008, a person who has hit the maximum taxable amount of earnings for every year after age 21 and is now applying for benefits at full retirement age would receive $2,185 a month, according to the Social Security Administration. If a wife and husband each met the criteria, each would receive $2,185. There is no "marriage penalty" when spouses are entitled to benefits on their individual earnings records.

--Mr. Ruffenach is a reporter and editor for The Wall Street Journal in Atlanta and the editor of Encore. He can be reached at encore@wsj.com.

NAVIGATING SPOUSAL BENEFITS

The Social Security Administration has a number of resources that can help people understand benefits available to spouses, ex-spouses and surviving spouses

• Near Retirement?
This page, on the Social Security Web site, guides users through retirement benefits. In particular, click on "Family benefits" and the calculator "Effect of early retirement (Spouse)."• "Retirement Benefits" Publication No. 01-10035*
Provides a good overview of Social Security benefits, including family benefits, spousal benefits and benefits for a divorced spouse.• "Survivors Benefits" Publication No. 05-10084*
Discusses benefits for surviving spouses and surviving divorced spouses.• "What Every Woman Should Know" Publication No. 05-10127*
A valuable guide that explains how Social Security benefits can help protect women, whether single, married, divorced or widowed.
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