If you expect to claim spousal Social Security benefits, it’s important to understand how your timing can make a significant impact on the size of your checks.
Many people claim their benefits at age 62, which, of course, is when they are first available. To squeeze the most out of spousal Social Security benefits, however, it can be best to wait until reaching your full Social Security age or older. This is especially true for married couples.
One way to maximize spousal benefits is through a strategy that is referred to as free spousal benefits. While that must sound tantalizing, you aren’t actually getting anything for free.
If you are married and you wait until your full retirement age, you enjoy two options. You can either claim your own Social Security benefit or a spousal benefit.
If you opt for the spousal benefits, your own unclaimed Social Security benefits will continue to grow untouched at 8% a year until age 70. If your own benefit ends up surpassing your spousal benefit, you are free to abandon your spousal benefit and claim your own.
Let’s see an example of how this would work:
After reaching their full Social Security retirement age, Jim and Karen’s retirement benefits are $1,000 and $1,200 per month, respectively. Deciding that Karen has a longer life expectancy, Jim claims his $1,000 benefit and Karen claims the free spousal benefit of $500. Karen’s own unclaimed benefit continues to grow at 8% per year until she reaches age 70.
At age 70, Karen switches to her own retirement benefit, which has grown to $1,584 in inflation-adjusted dollars.
Husbands and wives won’t enjoy the same opportunity if they can’t resist tapping into spousal benefits before their Social Security full retirement age. When individuals seek spousal benefits early, their own retirement credits will not grow further.
Let’s look at an example:
Jim, from our previous scenario, turns 66 and claims his $1,000 monthly check. Karen is just 62 when she attempts to claim a spousal benefit. When she makes this claim, Social Security will conclude that she has also applied for her own benefits. Her spousal benefit at age 62 would be $375 while her own retirement benefit at this age would be reduced to $900.
Since Karen’s checks could not exceed 50% of her husband’s full benefit ($500), she would begin receiving her own reduced benefit of $900 for the rest of her life.
The free spousal strategy will be advantageous for many couples, but there are other alternatives including the file and suspend method, which you’ll learn about here: Filing for Social Security (Sort Of)