Ep. 204 – Social Security Spousal Benefit in Retirement

In this Episode of the Secure Your Retirement Podcast, Radon and Murs speak with Heather Schreiber about social security spousal benefits and how it works.  Heather is a retirement income strategist, speaker, writer, and educator of financial, legal, and tax professionals.

Listen in to learn how spousal income works for couples with wide disparities in income benefits. You will get the full picture of how the fifty percent income benefit that the lower wage earner gets from the higher wage earner’s full retirement age benefit works.

In this episode, find out:

  • How spousal benefit will be impacted if the higher wage earner predeceases the lower wage earner.
  • Heather explains what happens with married couples with wide disparities in income benefits.
  • Understanding the meaning of spousal benefit and the value of waiting a little longer to collect.
  • Why spousal benefit always starts at fifty percent of the higher wage earner’s full retirement age benefit.
  • Understanding who’s entitled to the spousal benefit for people under 70 by January 2024.

Tweetable Quotes:

  • “Any benefit that you take prior to your full retirement age, whether it’s your own, spousal benefit, ex-spousal benefit, or survivor benefit, does come with a reduction.”– Heather Schreiber
  • “Social security wants to be paying your own retirement benefits before they pay any benefits under any other records.”– Heather Schreiber

Connect with Heather:


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Here’s the full transcript:

Radon Stancil:Welcome everyone to Secure Your Retirement Podcast. We are super happy and excited to have with us today, Heather Schreiber. Heather, just to kind of give you a little bit of understanding of what her relationship is with us, is we actually hire Heather as a consultant to help us think through and keep up with the many different variations of social security planning. It has been just super helpful and we have had her on another episode but really wanted her to come back on to handle a different kind of question. So Heather, thank you so much for buying out some of your time to come on and talk with Murs and I.  
Heather Schreiber:  Oh, love to do it. I’m glad to be here.  
Radon Stancil:Great, great. So Heather, we talked about getting back on and doing another podcast. Ultimately, this kind of came about because we had a situation here recently, which this is kind of how we interact that where the person said, “Hey, can I do this?” and they kind of gave us the scenario. And so then I formulated an email and sent that out to you and you helped us to make sure that we didn’t mess anything up.  
 So let me just kind of set the basis here. And then what I would like to do is just talk this through with our listeners so that they can hear this. And then we’re going to kind of have a few other questions as well. But here’s the situation. We had a client come to us, him and his wife are a little bit different in age and the question came about, he said, “I’m going to wait until 70 until I take my social security. She though,” he said, “I want her to start when she’s 62 is the idea. And then she’s going to take her benefit at 62. So a reduced benefit. And then what I want to know is that if I were to pass away, will she step up and get my benefit?” And honestly, I couldn’t remember if she was going to get a reduced benefit at that point because of starting early or will she get the full spousal, but could you kind of walk us through what that particular situation looks like and how that would play out?  
Heather Schreiber:Sure. So a couple of things. Let’s sort of deconstruct it a little bit. So you’ve got obviously a disparity in the income benefits, which is always something we want to pay attention to. And so the fact that he was going to wait until 70 means that if he predeceases her, which was the initial question, what happens to the benefits? Well, the first thing that happens that some people don’t know is when you’re married and one of the two and a couple passes away, the higher benefit is what remains. So the fact that she took at 62 doesn’t negatively impact her ability to step up to the survivor benefit.  
 Now, the difference between a spousal benefit while living, meaning when they’re both alive, and I think we got into this too, so if she were entitled to a higher benefit once he filed, so that’s the other thing, is that I think that became part of our conversation is that she filed at 62, she had earned her own retirement benefit. But of course any benefit that you take prior to your full retirement age, whether it’s your own, a spousal benefit, even an ex spousal benefit or a survivor benefit, any benefit that you take before your full retirement age does come with a reduction. And the theory is you’re getting it for essentially a longer period of time, all things remaining equal. And so it’s reduced. Well, with spousal benefits, the maximum spousal benefit that she could collect would be 50% of his full retirement age benefit. So notice you said he was waiting until 70. So during lifetime she’s only entitled to 50% of his full retirement age benefit.  
 With survivor benefits, she would step up to as much as 100%. And that’s the critical thing. Not only does she step up to 100%, but she also can inherit those delayed retirement credits that he earned by waiting until 70. And that’s why it’s so critical when you’re dealing with married couples, particularly a disparity like that where she’s got a much smaller benefit, he’s waiting till 70 knowing that, “If I wait till 70, I’m going to get the maximum lifetime benefit for us. But also if I pass away,” and assuming that she’s at least full retirement age when he passes away, so say her full retirement age is 67, then she’s going to step up to 100% of his retirement benefit. Now her own benefit goes away because it’s a smaller benefit, but she gets the delayed retirement credits that he earned during his lifetime. So I think that’s where your question went.  
 And I think of course I can never answer any question with a very simple one sentence answer. So I think we got into, “Okay, well what happens then when he files?” So she’s already filing at 62. We know that even if half of his spousal benefit is higher than hers, she can’t collect that spousal benefit until he files, okay? And so I think we went on to say, “Okay, let’s play this out.” She files at 62, she’s getting her small retirement benefit. So let’s fast-forward, he has now filed. That’s the critical ingredient for determining, “Okay, so now he’s filed,” the question I get all the time and where we went with that conversation was, “But what if half of his benefits higher than her own retirement, her own reduced retirement benefit?” And I said she can step up, but that benefit’s going to be added. That difference between his greater spousal benefit under his record and her reduced retirement benefit, that difference is going to be added to her reduced benefit. And so instead of getting the full 50%, she’ll get slightly less than that because she fell for her own benefit early.  
 So as you can see, there’s so much complexity to social security benefits and it’s hard for even those of us that talk about it all the time to get it all straight. But the big takeaway is with respect to particularly a wide disparity in income benefits, I don’t have a rule of thumb in terms of when everyone should file. But certainly when we’re dealing with couples that have definitely a difference, a marked difference between what they’ve earned over their earnings history, I always try to say, “Hey, one takeaway is if that higher wage earn can wait to full retirement age or beyond, it’s going to not only create more guaranteed lifetime income for the two of them, but it’s also going to secure a higher survivor benefit for whomever survives the other because we’re going to lose that lower benefit.”  
Murs Tariq:So for people that are listening, there is no simple answer to social security. I think just the one scenario that Heather just ran through shows there’s so many different little nuances that you got to think through and understand before you make a decision. You don’t want to get social security wrong because it is such a big part of a lot of people’s retirement planning. Probably 30% of the income that they’re going to expect is going to come from social security, so you don’t want to get that wrong. And I got to say, it’s nice to have someone like Heather in our back pocket because Radon and I, we know a lot when it comes to financial planning in general, retirement planning in general, but to be able to say that we’re an expert and we know every little piece about every little thing when it comes to it, that’s just not possible. And so having specialists in our arena that we can tap into.  
 I’ll tell you, I was in a meeting just like Radon was last week and he had to reach out to Heather. I had to reach out to Heather as well. My response to the client was, “Hey, I’m 90% sure that I’m right here, but I want to make sure that I get you the other 10% so that you can make the right decision here.” So I got on the phone with Heather, she gave me the right answer that I already gave to the client. I called him back and said, “Hey, I was right here. Let’s go ahead and file in this way.”  
 But Heather, it is a complex situation and there’s a lot to understand there, but I want to go back to the basics here. And it doesn’t need to take long, but just for someone who is not even close to social security yet, maybe they are 60 and they’re starting to contemplate, “Do I start it at 62? Do I wait till full retirement age? Do I wait all the way until 70?” And they do have a spouse as well that potentially was the higher income earner. We talked a lot there about spousal benefits and you brought that term up a lot. I think a lot of times people don’t understand what the value of what a spousal benefit is. So can you just in a simplistic way, just explain what is the spousal benefit and how can it be advantageous to at least understand?  
Heather Schreiber:Yeah, for sure. It is one of the most confused topics. So spousal benefits are designed to pay a spouse. And you have to be married. Now when I say spousal versus survivor, I’m talking about when those spousals are still alive, they have to be married for at least not one year in order for a dependent, I’ll call it a dependent or lower earning spouse to collect a spousal benefit. So here’s the good news. If you have a spouse that perhaps never worked long enough, they were raising a family, whatever the case may be, and they didn’t earn those 40 credits or quarters of coverage, that’s essentially equivalent to about 10 years of work to get eligibility under their own earnings record, then it’s not that they don’t get anything, they’re entitled to the greater of their own retirement benefit if they’ve earned it. But if they have it, then they’re entitled to a maximum of 50% of their, I’ll call them worker spouses full retirement age benefit.  
 So if I have a worker that has a primary insurance amount of $2,000 a month at their full retirement age, we’ll say that their full retirement age is 67 because they were born in 1960 or later, then that equates to a maximum of 1050% of that $2,000 figure that would go to their dependent spouse. Again, have to be married for 12 months. The other in critical ingredient is that the worker spouse has to file for the benefit. And that’s one of the questions I get. “Well, when can my dependent spouse collect a benefit under my record?” And the answer is you have to file. As the worker, you have to file first. So often it becomes sort of a challenge to decide to balance the higher wage earn saying, “Gosh, I’m the one that’s got the benefit that I’ve earned. I have to file in order for my dependent spouse to collect a benefit. But then I also know that the value of waiting a little bit longer is going to help us long term, because the reality is people are living longer.”  
 And so it becomes a balance, a challenge to figure out what that sweet spot is when you’ve got a dependent spouse that can’t collect anything until the higher wage earner files, but were also living longer. And you have to look at that. So that’s why it’s so incredibly important to have people in their corner like the two of you, because the other thing is social security administration, they’re overworked and they’re certainly not in the business of helping you navigate those critical decisions. And so that’s something that you really need to work with someone like you two to make sure that they are really dotting their eyes and crossing their Ts.  
Murs Tariq:Yeah, I’d like to go back and just clarify one thing that you said there on the spousal benefit. I think sometimes with spousal benefit, we get caught up in simplicity of, “Well, you either get your own benefit or you get half of your spouses. And this phrase is used, the higher of the two, which is true I think. But I think what a caveat or a disclaimer that should be added, and it’s confusing for us too, is that it’s only up to that person’s full retirement age. So it’s not half of that 70 year old’s benefit, it’s only up to that person’s full retirement age, which right now is around 67. So I think if you’re listening, I think that’s a key ingredient to deciding on spousal and understanding what you’re going to get from spousal. It’s not truly 50% of. And also on the flip side of it is if you take it earlier, so say your full retirement age is 67, but you decide to take it at 65… Or I’m sorry, the spouse has to wait until full retirement age to get that true 50% right, Heather?  
Heather Schreiber:Right. So we’re on the same wave… Let’s call it the wage earner has a full retirement age benefit, or primary insurance amount of 2,000. So we know that the maximum spousal benefit if they’re dependent-  
Radon Stancil:Hey, Heather?  
Heather Schreiber:Yep?  
Radon Stancil:Heather, hold on one second. Just because you froze right there at the beginning of that statement. I want to make sure it’s clear. So can you just start right back over from right where me Murs asked that question and you said we’re on the same wave length? Can you go back over that one more time?  
Heather Schreiber:Yes. Yeah, okay. So what I was saying is I like to use examples because I think it helps people conceptualize what we’re talking about. If we’re talking about a wage earner that has a full retirement age benefit of $2,000, then that means the maximum spousal benefit to their dependent spouse, let’s just make it easy, they haven’t earned their own benefits because they stayed home to raise a family. The maximum is going to be 1,000, right? If that wage earn, the working spouse takes a benefit at 62 and instead of getting 2,000, say gets 1,400, then the dependent spouse’s starting point is still 50% of the 2,000, okay? And just like you said Murs, if on the other side, if the wage earner decided to wait until 70 and now was getting a $2,600 benefit or whatever, then it’s still 50% of 1,000 for that dependent spouse.  
 How much of it we say up to 50%? What determines whether the spouse, a dependent spouse gets the full 50%? It’s dependent upon when he or she files for it. So in this case, if we’re talking about a stay-at-home mom, if she takes that benefit at 62, we’re starting at a thousand, but her spousal benefit will be reduced because she’s taking it early. Now keep in mind, remember I said in order for any dependent benefits to be paid, our or wage-earning spouse has to file. So there’s a lot of stuff that goes in there, but the point is you’re always starting at 50% of the higher wage earner’s full retirement age benefit. That’s also called their primary insurance amount. That’s your starting point, whether or not the dependent spouse… upon when she files for that benefit, and that is something that gets everyone confused all the time.  
Radon Stancil:All right, so I’m going to just flip one thing here in this scenario to make sure I understand it because I just want to make sure we’re clear. So let’s go to a scenario where you’ve got the dependent spouse, or let’s say that a spouse, the stay-at-home mom, but she in this case is a little older than the working spouse. So let’s say that person, the one who was the higher income earner decided to file at their age 62. If the spouse who was a stay-at-home mom, if she waits till her full retirement age to start taking the spousal benefit, will it still be based on his full retirement age or is it going to be because he started taking early, is she going to get reduced there off of his full retirement?  
Heather Schreiber:Nope. Remember, it’ doesn’t matter that he filed early. Her starting point is always 50% of his full retirement age benefit because in your example, she’s older, she’s already at or beyond her full retirement age when he files, because remember, he has to file. So let’s say he’s 62, he files, but she’s five years older, so she’s 67 at that point, she’s going to get that full $1,000 because she’s at full retirement age, even though he’s only getting 1,400. She’s not going to get half of 700. I mean 700 or half of 1,400, she’s going to get the full 1000 because she herself is at full retirement age when she becomes eligible for that spousal benefit.  
Murs Tariq:So yeah, it’s fun to sit here and talk to you about it and it all makes sense in this moment, but then it all kinds of blends back together in one big pile of mush really when we leave this conversation. I feel like that’s probably the same for anyone that’s thinking about whether or not to turn on social security and how it all works. So just know that we’re happy to help and help you understand it and know that we have Heather in our corner also as well.  
 Heather, I think there’s one more topic that I want to touch on. There’s a ton of strategies, but there’s some that have all but gone away. There’s a filing suspend method that’s now gone, so there’s no reason to talk about that. But there is a restricted application that is starting to go away. I think in our pre-talk here, you mentioned that there’s not many options left to use it, but I think it’ll be good for people under understand what that is and what age they would have to be to even qualify for that.  
Heather Schreiber:All right. It is a common question. So the question that kind of aligns with that restricting an application strategy is if I’m entitled to both a spousal benefit, I’m married and I’m also entitled to my own benefit, can I choose to take only the spousal benefit first and hold my own retirement benefit out of that application? Why would I want to do that? Well, people say, “Well, I want to get half of his or hers right now, and I want to let my own benefit continue to earn those delayed retirement credits from my full retirement age up until age 70.” That is a very common question. And before the Bipartisan Budget Act, which believe it or not was 2015 but we’re still talking about it, that was a [inaudible] strategy and a lot of people who had sage advice from people knew that they could use it.  
 Now, that strategy only applies to a very small demographic. It’s for people that are going to be 70 by January 1st of next year. So they had to have been born before January 2nd, 1954. So those are the folks that are 69 right now, have chosen to not take their own retirement benefits. So they’ve said, “I’m a higher wage earner” is usually the person that does this. “I’m the higher wage earner. I might still be working. I know that to secure the highest lifetime benefit for myself and my spouse, I should wait.” They have the opportunity if they haven’t yet filed to file a what’s called a restricted application, that as long as their spouse has either filed for their own benefit or is willing to, they can say, “Okay, I want to take a spousal benefit while my own is earning delayed retirement credits.” But again, these folks have to be anywhere between 69 and turning 70 by January 1st, 2024.  
 So this group of folks that can do it is a very small group of folks, but anyone listening to this needs to call the two of you because I do run into it on occasion where people had no idea that perhaps like in your example, the higher wage earner was waiting until 70. That’s the plan. Their own spouse had… A benefit had already filed and they had no idea that they could be collecting 50% of their spouse’s benefit all this time. And so they have missed out on income. So that is going away.  
 So what about the rest of us? And that’s kind of where they’re listening to this going, “Okay, well, I’m not 69 yet, so what does that mean for me? Am I able to collect or just choose to collect a spousal benefit first and let mine increase?” And the answer is no. And I always say this, when you were in kindergarten and the teacher said, “You get what you get, you don’t pitch a fit.” That’s basically the rest of us. So anyone that wasn’t born by January 1st, 1954, that’s most of us are probably listening to this, it means that when you file for benefits, you are considered to or deemed, D-E-E-M, as a Mary Deem, you’re a deemed filer. And that means that you cannot select only one type of benefit to file… that if you have earned one or a spouse-  
Radon Stancil:Hey, hold on one second, Heather. Hold on.  
Heather Schreiber:Yeah.  
Radon Stancil:I hate to interrupt you, but you went out just one more time. I’m going to bring you back here. I don’t know who’s internet here’s off a little bit, but I’m going to have him go in and fix all this. But go back and you said you went through the deemed and then pick up right after the deemed comment.  
Heather Schreiber:Okay. Yeah. So the deemed filing means that you cannot select a benefit to choose from. You’re basically putting all your tickets in the hat for both your own retirement benefit if you’ve earned one or a spousal. Sometimes that’s spousal benefits. Well, which we can talk about spousal. So that essentially means that if you have earned your own retirement benefit because you’ve worked at least 10 years, then that benefit when you file is always going to be paid first. Social Security wants to be pay your own retirement benefit before they pay any benefits under any other records. That makes sense. So the people that will be entitled to spousal benefits will be only those that that spousal benefit produces a greater benefit than their own retirement benefit, okay?  
 And that’s like we were talking in the case that we were talking about, is that the lower wage earn went ahead and filed at 62. Perhaps she had a very small benefit, maybe it was $500 a month. Who knows? So that benefit’s always going to be paid first. And then when her spouse files, then social security says, “Okay, let’s compare her own retirement benefit with what she could collect as a spouse.” If there’s a difference, that difference is added on to her retirement benefits so that she gets the greater of the two [inaudible] that’s where the greater of the two comes from. So the moral of the story is spousal benefits can be paid, but it’s only going to be paid for the rest of us, for those of us that aren’t turning 70 by January 1st, 2024, if it produces a higher benefit than our own retirement benefit. Our retirement benefits are always going to be paid before any other ancillary benefits are paid under a spouse or an ex-spouse.  
Radon Stancil:All right. Well, that I tell you-  
Heather Schreiber:Does that make sense?  
Radon Stancil:Yeah. Heather, it’s just amazing to go through and it’s so helpful, but I think at this point, our brains are starting to hurt a little bit on social security. So we do know though that these topics, we love hopping on and talking to you about this, and we love having you as a resource. And so we appreciate, again, you coming on and answering these questions. We have a blog that’ll be written on this as well, so we appreciate being able to have this stuff in writing so that we can go back and reference it as a guide. But we will and would love to have you come back on and handle other social security questions in the future. Maybe we won’t wait as long as we did on this one before we have you back on. But thank you so much. We certainly do appreciate it.  
Heather Schreiber:You’re welcome. It’s a pleasure to be here.