As discussed in the two-part series, Approaching 62? – Stop Before You Leap, there are financial and non-financial consequences that will be dictated by your choice of a Social Security retirement benefit starting age. It’s a decision that shouldn’t be taken lightly since it may possibly be the most significant factor in your ability to sustain financial security throughout retirement.
If you’re married, sustainability of financial security continues after the passing of the first spouse to die and often lasts for many years. If you decide to begin receiving your Social Security benefits before your full retirement age (“FRA”), you will also be turning on your spousal benefit. This is due to the deemed filing provision.
Under the deemed filing provision, when you apply for Social Security benefits before your FRA, you are deemed to also apply for your spousal benefit and vice versa. This is automatic. As a result, not only will you receive a reduced benefit compared to what you would receive if you wait until your FRA, your spousal benefit will also be reduced. In addition, your spouse must be 62 in order to receive a spousal benefit. Furthermore, a spousal benefit is only payable if you have been married for at least one year before filing for your benefit.
The spousal benefit is 50% of your benefit if your spouse has reached FRA. If you file an application to receive your benefits before your FRA, both you and your spouse will receive reduced benefits. Your benefit will be reduced by virtue of the fact that you’re applying for benefits before your FRA. At best, your spouse will receive 50% of your reduced benefit. If your spouse hasn’t reached FRA, his/her spousal benefit will be further reduced.
Spousal benefits are reduced from age 62 to FRA, which can vary from age 65 to 67 depending upon when your spouse was born. If your spouse is 62 when you claim your benefit and you claim your benefit before your FRA, he/she will receive 70% of 50% of your benefit, or 35% of your reduced benefit.
As an example, let’s suppose that you were born in 1952 and your FRA is 66. Let’s further assume that your monthly benefit at FRA is $1,000, however, when both you are your wife are 62, you decide to apply for your retirement benefits. Your benefit will be reduced by 25% to $750 and your spousal benefit, which would be $500 at your FRA, will be reduced to $262.50 (70% of 50% of your reduced benefit of $750). As a result of starting your benefits at age 62, you and your spouse will receive monthly benefits totaling $1,012.50 (your benefit of $750 plus a spousal benefit of $262.50), or $487.50, or 32.5%, less than the amount of $1,500 (your benefit of $1,000 plus a spousal benefit of $500) that you would have received had you waited until FRA to start your benefit.
If you haven’t reached your FRA and you’re married, beware of the deemed filing provision. That is, unless you don’t mind receiving reduced Social Security benefits for you and your spouse.
Robert Klein, CPA, PFS, CFP®, RICP®, CLTC® is the founder and president of Retirement Income Center in Newport Beach, California. Bob is also the sole proprietor of Robert Klein, CPA. Bob applies his unique background, experience, expertise, and specialization in tax-sensitive retirement income planning strategies to optimize the longevity of his clients’ after-tax retirement income and assets. He does this as an independent financial advisor using customized holistic planning solutions based on each client’s needs and personality.