R
eaders come up with the best questions.
Sarah, a financial adviser in Los Angeles, is one of them. Sarah asked whether a person who claimed reduced Social Security spousal benefits early, at 62, can do anything to restore a higher benefit. Specifically, could she suspend her spousal benefits at full retirement age and wait until age 70 to claim a higher benefit?
The answer is no, you can't suspend spousal benefits. I'll explain why after reviewing some basic rules.
If you collect Social Security benefits early, then change your mind, you have two options.
Within the first 12 months of claiming, you can withdraw your application for Social Security retirement benefits, repay any benefits you have received (including any other benefits collected on your earnings record, such as spousal or dependent child benefits) and restart your benefits at a higher amount at a later date.
Once the 12-month window has expired, you have another option. When you reach the full retirement age of 66, you can suspend your retirement benefits, but you don't have to repay them. The suspended benefits will accrue delayed-retirement credits worth 8% per year up to 70.
For example, if you collect retirement benefits as soon as possible, at 62, you receive a benefit worth 75% of the amount you could have collected if you had waited until you're 66 to file an initial claim. If you later regret your early-claiming decision, you could suspend benefits at 66, resulting in a 32% increase in benefits when you resume collecting them at 70 (4 years x 8% = 32%).
At that point, the enhanced retirement benefits would be worth 99% of what they would have been if you had collected them initially at age 66 (75% x 1.32 = 99%).
RETIREMENT CREDITS
But delayed retirement credits apply only to a worker's retirement benefits, not spousal benefits. That means the maximum spousal benefit is paid at full retirement age. It is based on half of the worker's primary insurance amount if collected at 66; less if collected earlier.
So if a worker is entitled to a $2,000-per-month retirement benefit at 66, his wife is entitled to a spousal benefit of $1,000 per month if she collects it at 66.
But if she collects it at 62, as Sarah's client did, the spousal benefit is reduced by 30% to $700 per month. (It gets a bit more complicated if Sarah's client is entitled to both a retirement benefit on her own record and a spousal benefit, known as being dually entitled. She is paid her retirement benefit first, and then an additional amount to bring her up to the level of her spousal benefit, if that is higher).
If Sarah's client is dually entitled, she could suspend the portion that represents her own retirement benefit, but she can't voluntarily suspend the spousal-benefit portion. Even if she could, it wouldn't make sense because spousal benefits do not earn delayed-retirement credits.
“So she's stuck with the lower amount unless her husband dies and she can claim a potentially higher survivor benefit?” Sarah asked. (Remember, a survivor benefit is worth 100% of what the worker received or was entitled to receive at the time of his or her death — including any delayed-retirement credits — whereas a spousal benefit is worth up to 50% of the worker's benefit and does not include delayed-retirement credits.)
“Don't think of it as being stuck with a lower benefit,” I responded. “She is lucky the Social Security system allows her to collect benefits as a spouse, considering she doesn't have enough work credits to qualify for benefits on her own.”
In most cases, the smartest decision a married couple can make regarding their Social Security benefits is for the higher-earning spouse to delay claiming benefits until full retirement age or later as a way of maximizing retirement income during their joint lifetimes, as well as securing the largest possible survivor benefit.
But many times, it makes sense for the lower-earning spouse — or a spouse with an insufficient earnings record to collect benefits on his or her own — to claim Social Security retirement or spousal benefits early as a way of generating some retirement income now and more later. And even though the spouse's retirement benefits will be permanently reduced, they will not affect her survivor benefits as long as she is at least full retirement age when she collects them.
