A client recently asked me: “Should I claim my modest Social Security retirement benefit early, say at 62, and then switch to my larger spousal benefit later on?” This question shows a serious misunderstanding of the relationship between retirement benefits and spousal benefits.
One can never switch from retirement benefits to spousal benefits. If a person is receiving retirement benefits (or they have filed and suspended receipt of those benefits), then the spousal benefit becomes a supplemental benefit, not a substitute benefit. In other words, when a person is eligible for both retirement and spousal benefits, the Social Security Administration first calculates their retirement benefit, and then adds their spousal supplement. While this distinction may appear trivial, it can nevertheless have significant implications for Social Security claiming decisions, as I will show below.
Just to keep things reasonably simple, I limit the following discussion to those circumstances in which a person claims retirement benefits early and then claims spousal benefits at their full retirement age (FRA). Note that if a person claims retirement benefits before FRA and they are eligible for spousal benefits at the time of claiming, then the SSA “deems” that both benefits are being claimed. So, the case I discuss here applies only to those who could not claim spousal benefits at the time they claim retirement benefits. A person cannot claim spousal benefits unless their spouse has claimed his or her own retirement benefits. (This restriction does not apply to ex-spousal benefits, but that is a topic for another time.)
Let’s look at an example to see how this works. Consider a hypothetical couple: Karen and Burt, who are both 62. Karen’s retirement benefit at age 66, her full retirement age (FRA), is $400 a month. Burt’s age 66 (his FRA) benefit is $2,000. Karen’s maximum spousal benefit is $1,000 at 66 (that is half of Burt’s age 66 retirement benefits). Burt plans to file for retirement benefits at 66, at which point Karen will be eligible to claim spousal benefits.
Karen knows that she can claim retirement benefits early at age 62 and get $300/month (75% of the $400 she could get at her FRA). She also believes that at her FRA she can switch to her spousal benefits and get $1,000. She is wrong on this last count. By claiming spousal benefits at her FRA, she can get the full spousal supplement, but that will not bring her up to $1,000.
Here is how the full spousal supplement is determined. It equals 1) a person’s maximum spousal benefit at their FRA ($1,000 for Karen) minus 2) that person’s retirement benefit at FRA ($400 for Karen). By claiming spousal benefits at her FRA, after claiming $300 in retirement benefits at 62, she gets a full spousal supplement of $600 (= $1,000 – $400). This brings her total benefit, at FRA, up to $900, not the $1,000 she was expecting.
Claiming retirement benefits early results in a significant reduction in those benefits. Karen thought she could claim retirement benefits early and then dodge that penalty by “switching” to spousal benefits. But, that is simply not possible, as the above example demonstrates. The early retirement penalty will stick with Karen until she dies (or until she switches to widow’s benefits— a topic for another post).
A final point: just as early claiming of retirement benefits is penalized, so is early claiming of a spousal supplement. But, just to add to the complexity, the SSA uses different early claiming penalties for the two benefits.
For much more information about benefits available to married couples, go here.