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Monday, February 9, 2015

Social Security “Spousal Benefits” – the money you never knew you had!

Spousal benefits are available to spouses, divorced spouses and widows / widowers. Married individuals can choose which Social Security benefit they will receive – their own or a percentage of their spouse’s, whichever is greater. The benefit of receiving the ‘spousal benefit’ is to delay the collecting spouse’s retirement age, and as a result, receive a larger Social Security Payment from her own earnings in the future.

When Should One Apply for Spousal Benefits:

Only after the both spouses reach the full retirement age (FRA). If you apply before the FRA, you may be permanently penalized and will not receive the full benefit of the program.

How Does It Work?

For example, Mary is 66 (her FRA), and her husband Jake is 67 (past his FRA). Jake is entitled to collect $2,000 from Social Security. Mary, if she were to start collecting her own social security benefit, would receive $800. Mary can either begin collecting her own benefit, or collect the $1,000 of the “spousal benefit” for the next 4 years (50% of Jake’s full benefit). As a result, she will delay collecting her own benefits until the age of 70. At the age of 70, she can begin collecting her own benefits, but at that point they will be 132% of the original amount - $1,056.

What If The Higher Earning Spouse Does Not Want to Collect His Own Benefit Yet?

In order for Mary to collect the “spousal benefit”, Jake needs to apply for his own benefit first. If he is not ready to start collecting yet, Jake can apply for benefits and then ‘suspend’ them. As a result, Mary will collect her spousal benefit based on Jake’s retirement benefit at the FRA. Simultaneously, by suspending the receipt of his own retirement benefits, Jake will be taking advantage of the increased benefits that he will receive after he turns 70. There is absolutely no downside to collecting ‘spousal benefits’.

Are These Benefits Available for Divorced Spouses?

Yes.  As long as you have been divorced for at least 2 years, the marriage lasted 10 years or longer, both you and your former spouse are aged 62 or older, and the former spouse is entitled to Social Security Benefits, you are entitled to ‘spousal benefits’.

Two additional benefits for divorced spouses:

  1. the former spouse does not need to know that the spouse has applied for ‘spousal benefit’

  2. the former spouse need not have filed (or filed and suspended) his own Social Security benefit in order for you to receive it.

Are These Benefits Available for Widows / Widowers?

At the death of one spouse, the surviving spouse will receive the larger of her own benefit or her husband's benefit, but not both. Therefore, it is beneficial for both spouses not to take their retirement benefits too early. The delay in collecting Social Security and maximizing  both spouse's benefits can act as another form of life insurance.

See more at: http://individual.troweprice.com/retail/pages/retail/applications/investorMag/2014/june/managing-it/index.jsp

This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney client relationship.


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