Social Security spousal benefits don’t earn delayed retirement credits

When married couples are different ages and have disparate earnings histories, deciding on the best Social Security claiming strategy can be a challenge.

The key is to focus on how to maximize benefits for the surviving spouse.

I just received a great question from Toby Tobleman, a financial planner in Austin, Texas, that addresses such an issue for a traditional married couple.

“I have a client couple where the wife is two years older than the husband,” Mr. Tobleman wrote.

“The husband has maximum Social Security earnings, and the wife worked only a couple of years so her earnings history is not a factor. The husband wants to defer collecting his Social Security benefits until age 70, so he plans to file and suspend when he is 66 to trigger spousal benefits for his wife, who will be 68 at that time,” Mr. Tobleman wrote.

So far, so good. It is an excellent strategy.

Now here is Mr. Tobleman’s great question: “Will the wife’s spousal benefit be increased to reflect the delayed commencement of spousal benefits at age 68 even though her full retirement age is was 66? The actuary in me makes me thinks that there should be some actuarial enhancement for the wife’s spousal benefit.”

Although that is a logical question, that isn’t the way spousal benefits work.

Unlike retirement benefits, which increase by 8% for each year a worker delays claiming benefits beyond full retirement age up to 70, spousal benefits don’t earn delayed retirement credits.

Her spousal benefits are based on half her husband’s primary insurance amount at his full retirement age if she collects them at her full retirement age or later.

So even if the wife has to wait two years beyond her full retirement age of 66 to collect her spousal benefit, they won’t increase. However, intervening cost-of-living adjustments would apply.

And even when the husband begins drawing his retirement benefit at 70, which will boost his benefit by 32%, compared with his full retirement age, his wife won’t step up to a larger spousal benefit. Remember, spousal benefits are based on half the full retirement age benefit, not half the larger enhanced benefit.

Given the age difference between the two spouses and the fact that she doesn’t have sufficient earnings credits to allow her to collect her own Social Security spousal benefits, this seems to be the best strategy for the couple.

The wife can only receive spousal benefits if her husband claims his benefit or if, as in this case, he files and suspends to trigger her benefits and delay collecting his own. The file-and-suspend strategy is only available to those who wait until at least their full retirement age to claim benefits.

However, if the husband dies first, her survivor benefit will be based on 100% of what the husband received or was entitled to receive at the time of his death, including his delayed retirement credits.

So this strategy is a triple winner.

The wife will be able to collect spousal benefits beginning at 68 once he files and suspends. The husband will maximize his retirement benefits by delaying until 70 to collect.

And, in the event that he predeceases his wife, she is guaranteed a maximum survivor benefit.