Planning Your Retirement: How to Take Spousal Benefits

It's critical that married couples understand the rules that apply to them when it comes to Social Security benefits. Not only do these rules affect the income you'll receive while you're both alive, but they directly affect the security of the survivor, who is often the wife. Poverty among elderly widows is a real problem in America, and making smart decisions about your Social Security benefits will help keep your surviving spouse out of poverty after you're gone.

Welcome to the second post for Week Five of 12 Weeks to Plan Your Retirement. My previous post this week covered the benefits you might get from Social Security. Now it's time to focus on the income your spouse will receive.

Your spouse's Social Security income is the greater of (a) the benefit based on his or her own covered earnings, or (b) a benefit based on up to half of your benefit (called the spouse's benefit). The spouse's benefit is payable even if your spouse never worked or only worked sporadically. While both of you are alive, your household income from Social Security is the sum of your own Social Security income and your spouse's income. Your income is not reduced because your spouse also receives Social Security income.

Now let's continue the checklist of things to learn, steps to take, and important decisions to make. First, however, you'll need to read my previous post as background for understanding this post, so you might want to go back and do that now. After you're finished, here are the questions to answer next:

• What will your spouse's expected benefit be based on his or her earnings? Go through the checklist in my prior post, and check your spouse's earnings history, determine his or her full retirement age or "FRA," and estimate the benefit your spouse will receive based on his or her own earnings, using the calculator on the Social Security website.

• What will the "Spouse's Benefit" be? This amount is based on your full benefit at FRA and the age your spouse starts receiving this benefit. It is not based on when you start receiving your own Social Security benefits. Note that your spouse needs to wait until he or she reaches age 62 to start benefits. Here are the steps to take to estimate your spouse's benefit:

1. Estimate the Social Security benefits you'll receive at your FRA.
2. Divide the result from Step 1 by two. That's the amount of your spouse's benefit, starting at your spouse's FRA.
3. Now determine the amount received if your spouse starts the income before his or her FRA (it will be a lower amount than if your spouse had waited until his or her FRA). The early retirement reduction is similar to the reduction applied to early retirement for your benefits, but the factors are slightly different. For example, if your spouse's FRA is 66, then the reduction for early retirement is about 30 percent at age 62, 25 percent at age 63, 17 percent at age 64, and 8 percent at age 65. Note that there is no increase in benefits for delaying the spouse's benefit beyond FRA.

If the Spouse's Benefit works out to be greater than the benefit based on your spouse's own earnings, this is the income your spouse will receive while both of you are alive. (Social Security makes the determination of which benefit is larger; you don't need to do this on your own.)

• What happens when one of you dies? First, the Social Security income for the deceased person stops. Then the surviving spouse receives the greater of (a) the Social Security benefit based on the surviving spouse's earnings, as described previously, or (b) the Social Security income the deceased spouse was actually receiving. Note that only one Social Security income is payable; the surviving spouse won't receive both the deceased spouse's income and his or her own Social Security income. In short, the survivor gets to keep the higher of the two payments.
• How does the earnings test affect your spouse? Your spouse is subject to the same work rules. If your spouse is receiving social security while working, and not yet reached FRA, it can reduce your spouse's Social Security income, whether it's his or her own Social Security benefit or any Spouse Benefit. But your spouse working would not affect your Social Security. If you work before FRA, it can reduce not only your own Social Security, but also the Spouse Benefit payable on your record. Remember that the earnings test applies only when the person working has not yet attained FRA; after attaining FRA, you can earn unlimited wages with no reduction to your Social Security income.
• When can your spouse start Social Security benefits? Your spouse can start his or her Social Security benefits based on your spouse's earnings history at any time, provided he or she has attained age 62. However, your spouse can only start the spouse's benefit after you start your own benefit. There's an important exception called "file and suspend," but it only applies after you attain your FRA: You can file for your own benefits and then immediately suspend them. That allows your spouse to start the spouse's benefit, while your benefit earns delayed retirement credits.

There are also special rules that apply:

• If you or your spouse had substantial employment from a government employer,
• If you still have dependent children living with you, or
• If you are divorced.

As I mentioned in my previous post, Social Security benefits have unique and powerful advantages to help during your retirement years. It's well worth your time learning how to maximize those benefits.

More on MoneyWatch

• 12 Steps to Get Your Retirement Plan in Order
• Planning for Retirement: What You Need to Know About Social Security
• When Should You Start Your Social Security Benefits? Do the Math!
• Retirement Planning for Gay and Lesbian Couples

Steve Vernon

View all articles by Steve Vernon on CBS MoneyWatch»
Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Retirement Game-Changers: Strategies for a Healthy, Financially Secure and Fulfilling Long Life and Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck.

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