Spouse's SS Entitlement Is Reduced for Taking Her Working Benefits Early
by Shane Flait | July 19, 2012
Be careful not to undermine the Social Security benefits you expected. It's easy to be confused by all the ramifications the Social Security system puts on benefits. Here's an example of how a spouse who begins her own Social Security benefits early undermines her later 'spousal' Social Security entitlement.
Anyone can receive Social Security income at retirement based on his work history. He can begin receiving benefits as early as 62 or as late as 70. All benefits are geared to the projected benefit he would get if he retired at what the Social Security system calls his 'Full Retirement Age' (FRA).
If his FRA is 66, then beginning earlier than that causes a permanent reduction in his monthly benefit - in proportion to how much earlier he starts. Waiting beyond 66 will increase his monthly benefit in proportion to how long after 66 he waits to begin receiving - up until age 70.
A spouse of someone eligible to receive Social Security benefits, can receive her own work-earned benefits from Social Security or has an entitlement benefit through her marriage to receive an amount equal to half her husband's benefit - whichever amount of the two options is greater. Taking the spousal entitlement is an advantage if she has not worked (i.e. has earned no Social Security benefit) or her husband's benefit is considerably greater than her on working benefits.
A ramification to all this is that all these benefits are determined based on the FRA of both spouses. And here's the effect. Suppose the wife begins receiving her own earned Social Security income when she turns 62. If her FRA benefit is projected to be $350 per month, then perhaps at 62, she'll receive only $300 per month for starting early.
Now suppose after a couple of years her husband begins receiving his Social Security income at his FRA. He receives $1,000 per month. How much can his wife - who began early - now receive?
Well, she's entitled to receive an amount equal to half her husband's benefit. If she retired at her FRA, then she'd get $500 per month since that's greater than her own FRA benefit of $350. The Social Security Administration would just increase her $350 per month benefit by $150 (i.e. $500 husband's benefit less $350 wife's benefit).
But, because she began her own benefits early, she'll suffer an adjustment. She'll get that extra $150 based on the above FRA calculation. But that $150 is added to her $300 per month benefit. So her total will only be $450 per month instead of the $500 per month.
If you're concerned about just what Social Security benefit you and your spouse can receive based when each of you will begin receiving benefits, be sure to call ( 800-772-1213 ) the Social Security Administration or go to its local office.
About Shane Flait
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About Chia-Li Chien
Chia-Li Chien, CFP®, CRPC, PMP; Chia-Li “like JOLLY!” Succession Strategies for Women Entrepreneurs. She is Chief Strategist of Value Growth Institute dedicated to helping private business owners increase the value of their firms. She is the award-winning author of Show Me The Money and faculty member of American Management Association. Her blog and newsletter was named a top small business resource by the New York Times “You’re the Boss” blog.