Early Retirement & Spousal Benefits

Last week I posted that starting your Social Security when younger than full retirement age (FRA) can be a good option if it fits your overall retirement financial planning.

If it fits your plans, another time when starting your retirement benefits early, meaning before your FRA, could be good is if you will be able to receive a higher amount as a spouse later on.

For example, Spouse A is at least age 62, but younger than full retirement age, with career earnings that are much less than those of Spouse B. The couple expected that Spouse A would retire first and would be eligible for spousal benefits when Spouse B retires several years in the future.

Amounts are not needed for this example. Upon retirement of Spouse B, they know that Spouse A will be eligible for some spousal amount to increase his or her ongoing retirement amount.

Spouse A’s own early retirement amount is permanently reduced but his or her overall benefits will increase when Spouse B begins Social Security. Until then, reduced retirement is received monthly.

The future spousal amount is largely based on Spouse A and B full retirement age amounts, not the actual benefit amount of either, and the age of Spouse A at the time. Early retirement will result in a lower combined amount to Spouse A than if she or he had waited, but the combined retirement and spousal amounts will be more than retirement alone.

Started early, reduced retirement of Spouse A provides immediate ongoing monthly income. Increase by a future spousal amount helps offset that reduction. This could be a good option for you.

Before considering this, be sure that a spousal benefit is payable. A popular, but wrong, spousal myth is often stated as “the wife can receive one-half of the husband’s amount.” That is not how benefits are computed. While it can work out that way, do not count on it. If wife and husband had similar earnings, any spousal benefit is unlikely. Either husband or wife can potentially receive a spousal benefit.

How to determine if a spousal benefit is potentially payable is not my purpose today, but here is an abbreviated explanation. How much a spousal benefit would be is a separate topic.

In short, Social Security compares full retirement age amounts, not actual benefit amounts, of each spouse. If the smaller FRA amount is less than one-half of the higher FRA amount, a spousal benefit to the person with the smaller FRA amount is possible. If the smaller FRA amount is equal to or more than one-half the higher, spousal benefits are unlikely.

For illustration, if the two FRA amounts are $2,000 and $900, one-half of the larger is $1,000. Since $900 is less than $1,000, the person with the $900 FRA amount would likely receive a spousal benefit. If the smaller FRA amount is $1,100, spousal benefits are unlikely because $1,100 is more than one-half of the $2,000 FRA amount.

A spousal benefit calculator is in the Retirement Planner. Note that it does not factor in a person’s own retirement amount so has limited value for today’s post topic. If you use it, remember that normal retirement age is the same as full retirement age and that primary insurance amount is the same as FRA amount.

Part of the Retirement Planner, more about Social Security spousal benefits is here.