How To Calculate Your Own Social Security Spousal Benefits
The spousal benefit calculation is straightforward if you dont have a benefit of your own. Remember, in that case, its between 32.5% and 50% of the higher-earning spouses full retirement age benefit, depending on your filing age.
However, it can seem a little more complicated if you have Social Security benefits from your work history.
And to keep things interesting, the Social Security Administration decided that a different calculation method should be used to determine how much each benefit should increase/decrease based on your filing age.
Fun, right?
As complicated as Social Security benefits can seem, there is a way to correctly calculate how much your spousal benefit will be if you qualify to receive it.
Check out this section of my video that goes over this calculation step-by-step. VIDEO: How To Calculate Spousal Benefits The RIGHT Way
If you understand how they break down the individual benefits, its not hard to use the table above to quickly figure out what your approximate benefit will be. Heres an example.
Joe and Julie each have a Social Security benefit from work they individually performed. Julies benefit at her full retirement age is $800 per month. Joes benefit at his full retirement age is $2,000.
Assuming they are both full retirement age when they file, Joe will be entitled to a benefit of $2,000 and Julie will be entitled to the greater of her own benefit or half of Joes benefit.
Sounds simple, right?
When Should I Start Collecting Social Security
Ultimately, the decision of when to begin collecting Social Security is one you have to make. It depends on your age, your health status, how much you spend and how much you have saved. Its generally best to start collecting as late as you can, because you get a larger monthly payment, which is adjusted for inflation each year.
Consider a retiree who was born in 1950 and averaged $50,000 a year in salary. If she has $3,000 a month in expenses, her Social Security check would cover 48 percent of her expenses if she started Social Security at age 62. If she waited till age 70, her check would cover 85 percent of her expenses. Every year she delays retirement, her Social Security payout which is adjusted annually for inflation rises by about $1,649.
Traditionally, the retirement system in the U.S. has been a three-legged stool: Social Security, savings and pensions. Social Security was never intended to be the sole source of income for retirement. Increasingly, however, employers have been moving away from their employer-sponsored pension plans in favor of tax-deferred retirement savings accounts, such as 401 plans.
Who Is Entitled To Survivors Benefits From Social Security
How Social Security Can Help You When a Family Member Dies SSA.gov/benefits/survivors
Social Security is a key source of financial security to widowed spouses. About 7.8 million individuals aged 60 and older receive Social Security benefits based, at least in part, on a deceased spouses work record. These surviving spouse beneficiaries are overwhelmingly women.
These beneficiaries include 3.6 million people who are eligible only as widowed spouses. Another 4.2 million who are entitled to benefits based on their own work records but whose deceased spouses benefit amounts were higher than their own, will receive higher benefits as individuals .
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The Rules Changed In 2015 Here’s What You Need To Know Now
If you have never worked or paid Social Security taxes , you won’t be eligible to claim Social Security retirement benefits on your own account. However, you may be able to receive spousal benefits through your spouse’s account. You can file a claim under their account as early as age 62, as long as your spouse has already filed to collect their own benefits. You will also be able to apply for Medicare health coverage at age 65.
Strategies For Maximizing Spousal Benefits
Every married couple has to figure out the best way to maximize their benefits depending on their own circumstances.
The three strategies below will help you make the most of your Social Security spousal benefits, depending on your circumstances. However, keep in mind that, regardless of your circumstances, the most a spouse can get is 50% of the amount that the higher-earning partner is entitled to at full retirement age.
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‘file And Suspend’ Has Been Totally Eliminated
You may also hear or read about another Social Security claiming strategy known as file and suspend. Unfortunately, it is no longer applicable, also due to the Bipartisan Budget Act of 2015. Using this strategy, the higher-earning spouse could file for Social Security at full retirement age , but then “suspend” his or her claim and not take benefits until later, while racking up delayed retirement credits in the meantime.
Applying For Spousal Benefits
You can apply for spousal benefits online at the Social Security Administration website, over the phone, or by making an appointment at your local Social Security office. The SSA website also has links to information about the maximum amount you can earn while collecting benefits and an online calculator to help estimate your potential spousal benefit.
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Are Social Security Benefits Taxable
If you have a lot of income from other sources, up to 85% of your Social Security benefits will be considered taxable income. If the combination of your Social Security benefits and other income is below $25,000, your benefits wonât be taxed at all. The amount of your benefits that is subject to taxes is calculated on a sliding scale based on your income. Money that Social Security recipients pay in income taxes on their benefits goes back into funding Social Security and Medicare.
If your retirement income is high enough that your benefits are taxable, how do you pay those benefits? You can ask Social Security for an IRS Voluntary Withholding Request Form if youâd like the government to withhold taxes from your Social Security benefits. Otherwise, youâre expected to file quarterly tax returns to pay these taxes over the course of the year.
That covers federal income taxes. What about state income taxes? That depends. In 12 states, your Social Security benefits will be taxed as income, either in whole or in part the remaining states do not tax Social Security income.
Bonus: How Reductions Are Calculated On A Monthly Basis
One last thing I think is important for those who really want to grasp the fine details of this calculation is understanding how the reductions are calculated on a monthly basis since you may want to file in between birthdays.
There are three separate bands that you have to know about:
For the band of more than 36 months away from FRA, the spousal payment and your own benefits are reduced the same. 5/12 of 1% per month.
Within the band of 1-36 months before FRA, spousal benefits are reduced by 25/36 of 1% percent and your own benefits are reduced by 5/9 of 1%.
After full retirement age spousal benefits are not increased at all but your own benefits are increased by 2/3 of one percent.
I know weve covered A LOT of ground in this article but I hope its helpful when you are planning how to file for social security.
Before you leave be sure to join my members group. Its currently at 9,000+ members and has some really smart people who love to answer any questions you may have about Social Security. From time to time Ill even drop in to add my thoughts, too. You should also consider joining the 273,000+ subscribers on my YouTube channel!
My video on Spousal Benefits
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Who Is Eligible To Collect Social Security Retirement Benefits
Workers who are at least age 62 and who have worked at least 10 combined years at jobs for which they paid Social Security taxes are eligible for Social Security retirement benefits. In many cases, spouses, widows and divorcees are eligible for Social Security retirement benefits based on a spouses or ex-spouses earnings history. Unmarried children 18 and younger can also get survivors benefits. You must be a U.S. citizen or lawful alien to collect benefits.
What Is The Future Of Social Security
As of June 2022, the Social Security Trust Fund is projected to have enough resources to cover all promised benefits until 2035 when, absent a change from Congress, benefits would need to be cut for all current and future beneficiaries to about 80% of scheduled benefits.2 Over the longer term, changes to the full retirement age or means testingâwhich could reduce or eliminate benefits based on your other income sourcesâmay also be considered.
If you’re skeptical about the future of Social Security or wary of potential changes, you may be tempted to start benefits early, assuming that it’s better to have something than nothing. Regardless of your situation, if you are concerned about the future prospects for Social Security, then that’s a good reason to save moreâand earlierâfor your retirement.
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Changes To Social Security Law
Some changes to the law in recent years have affected how you can collect spousal benefits. If you were born on or before Jan. 1, 1954, you may still be eligible to use a benefits-claiming strategy known as a “restricted application” to increase your benefits.
Younger recipients won’t be able to use this strategy, which was ended by the Bipartisan Budget Act of 2015.
What About Taxes On Social Security
Social Security benefits may be taxable, depending on your “combined income.” Your combined income is equal to your adjusted gross income , plus non-taxable interest payments , plus half of your Social Security benefit.
As your combined income increases above a certain threshold , more of your benefit is subject to income taxâup to a maximum of 85%. For help, talk with a CPA or tax professional.
In any case, if you’re still working, you may want to postpone Social Security either until you reach your full retirement age or until your earned income is less than the annual limit. In no situation should you postpone benefits past age 70.
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Spousal Benefit Reduction Due To Own Retirement Benefit
If you are receiving a retirement benefit of your own, your benefit as a spouse will be reduced by the greater of:
Example: In addition to receiving a benefit as Janes spouse, Bob is also receiving a retirement benefit of his own. Because he is entitled to a retirement benefit of his own, he will not receive the full spousal benefit . Instead, his spousal benefit will be reduced by the greater of a) his own PIA or b) his monthly retirement benefit.
Will Your Expenses Decrease After You Retire
Retirement could be more expensive than you expect.
If you’re planning an active retirement or carry a mortgage or other debt, retirement may be more expensive than you expect. Some regular expenses like your out-of-pocket health care costs will likely increase as you get older. You can protect your retirement lifestyle by reducing your largest expenses. You can also increase your regular income by claiming at your full Social Security benefit age or later. If you claim earlier, your monthly benefit could be reduced by as much as 30 percent.Create a retirement budget.
Retirement could be more expensive than you expect.
If you’re planning an active retirement or carry a mortgage or other debt, retirement may be more expensive than you expect. Some regular expenses like your out-of-pocket health care costs will likely increase as you get older. You can protect your retirement lifestyle by reducing your largest expenses. You can also increase your regular income by claiming at your full Social Security benefit age or later. If you claim earlier, your monthly benefit could be reduced by as much as 30 percent.Create a retirement budget.
Maintain your lifestyle by planning ahead.
Maintain your lifestyle by planning ahead.
Many people find retirement is more expensive than expected.
Many people find retirement is more expensive than expected.
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Find Your Social Security Full Retirement Age
You can claim your Social Security benefits a few years before or after your full retirement age, and your monthly benefit amount will vary as a result. But first you have to know what it is.
Also known as normal retirement age, your Social Security Full Retirement age is the age at which youre entitled to 100% of the Social Security benefits youve earned. FRA is 66 for beneficiaries born between 1943 and 1954 it gradually increases to 67 for beneficiaries born in 1960 or later. If you take benefits before FRA, your benefits will be reduced. If you file at age 62, for example, benefits will be as much as 30% lower. More on that in a moment.
Your Government Pension May Affect Social Security Benefits
The Government Pension Offset, or GPO, affects spouses, widows, and widowers with pensions from a federal, state, or local government job. It reduces their Social Security benefits in some cases.
If you receive a pension from a government job but did not pay Social Security taxes while you had the job, well reduce your Social Security spouse, widow, or widower benefits by two-thirds of the amount of your government pension. This offset is known as the GPO.
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Follow These Steps To Get Started:
Thats it! So create or sign in to your mySocial Security account and start planning for your future today!
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Sign in to your account and scroll down to the Plan for Retirement section to start planning for your future.
Theres An Annual Social Security Cost
One of the best features of Social Security benefits is that the government adjusts the benefits each year based on inflation. This is called a cost-of-living adjustment, or COLA, and helps your payments keep up with increasing living expenses. The Social Security COLA is significant. Its the equivalent of buying inflation protection on a private annuity, which can get expensive.
Because the COLA is calculated based on changes in a federal consumer price index, the size of the COLA depends largely on broad inflation levels determined by the government . In 2023, Social Security beneficiaries will likely see a 9.7% COLA in their monthly Social Security benefits, the biggest increase since 1981. The COLA for 2023 will be announced on October 13.
Heres what COLAs have been in other recent years:
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Your Monthly Social Security Benefits Increase The Longer You Wait To Claim
While you can collect Social Security benefits as soon as you turn 62, taking benefits before your full retirement age will spell a permanent reduction in your payments of as much as 25% to 30%, depending on what your full retirement age is.
If you wait until you hit full retirement age to claim Social Security benefits, youll receive 100% of your earned benefits. But you can do even better by waiting to claim your Social Security benefits at age 70 your monthly Social Security benefit will grow by 8% a year until then. Any cost-of-living adjustments will be included, too, so you dont forgo those by waiting. Think of that time as bonus earning years and remember that youd be hard pressed to find those sorts of gains for zero risk during that period anywhere else.
Waiting to claim your Social Security benefits can help your heirs as well. By waiting to take her benefit, a high-earning wife, for example, can ensure that her low-earning husband will receive a much higher survivor benefit in the event she dies before him. That extra income of up to 32% could make a big difference.
Divorced Know This Significant Exception To The Rule
When planning your Social Security filing strategy, its important to note that you cannot file for a spousal benefit until the higher earning spouse files for their benefit.
But this does not apply if your are filing for a spousal benefit from an ex-spouse.
If your ex-spouse has not applied for retirement benefits you can receive benefits on his or her record if you have been divorced for at least two years and your ex-spouse is at least 62.
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What If I Take Benefits Early
If you choose to take your own Social Security benefit before your full retirement age, be aware that the benefit is permanently reduced by five-ninths of 1% for each month. If you start more than 36 months before your full retirement age, the worker benefit is further reduced by five-twelfths of 1% per month for the rest of retirement.
For example, let’s assume you stop working at age 62. If your full retirement age is 67 and you elect to start benefits at age 62, the reduced benefit calculation is based on 60 months. So, the reduction for the first 36 months is 20% and then another 10% for the remaining 24 months. Overall, your benefits would be permanently reduced by 30%.