Christine Benz: Hi, I'm Christine Benz for Morningstar.com.
The decision about when to file for Social Security benefits is a complicated one, and it gets even more complex when two spouses are involved.
Joining me to discuss this topic is Andrew Salata. He is a public affairs specialist with the Social Security Administration.
Andrew, thank you so much for being here.
Andrew Salata: Thank you for inviting me. I know when it comes to couples filing, we have a lot of questions about what would work out best or what we're even eligible for, so hopefully this will allow a little bit more information to go out there, so we can be better informed when we're ready for that retirement decision.
Benz: Right. So the first question is, if I'm a person who has been working and have my own earnings history and I'm also married, how do I decide whether my own earnings history and my own personal benefit is better than my spousal benefit? How can I get my arms around that question?
Salata: Well, two factors will come into play: whether you are before your full retirement age or if you are at or past your full retirement age will almost make the decision for you. If you are prior to full retirement age, you automatically receive the higher of the two benefits, whether it's your own retirement or that spousal amount. So you don't get to choose one or the other. With early retirement, you are restricted to the higher of the two.
Benz: OK. So the spousal benefit, that full retirement age is a big swing factor there. So if I am of full retirement age and I take a spousal benefit, let's talk about what I get in that case or if I file early, what my benefit is at that point?
Salata: At full retirement age, you'd be eligible as a spouse for 50% of the worker's record or you can receive your own Social Security benefits at a 100%. But one of the key things is, when you hear a 50% or a 100%, you're probably thinking, well, the 100% is a lot more advantageous.
Salata: But there are some considerations in play where you may be able to take that spousal benefit at 50%, so you will receive some Social Security benefits, while you wait for delayed credits to go onto your record. Because if you delay your retirement, for every year you delay receipt of retirement benefits, you get 8% extra added on and you can delay up to age 70. So for our full retirement age workers now who are turning 66, that's four years, or 32% extra.
Normally if you're delaying for retirement benefits, you're not receiving a Social Security benefit, but fortunately if you are a spouse, you'd be eligible to take at least 50% of the spousal benefit and receive some money while you're letting your own benefit accrue. So that way as we live longer into our retirement, we will have a higher amount set for our financial future.
Benz: OK. Also in the mix is when one partner in a couple is eligible for a pension and receiving pension benefits. Let's talk about the implications for the person's own benefit as well as spousal benefits.
Salata: When someone receives a pension, as long as it's from a job where they paid into Social Security, it doesn't impact the receipt of a spousal benefit.
But for those workers that paid into a different retirement system, instead of Social Security, like city or state or any government jobs, they had not paid into Social Security. So [there is no comparison] for a spousal benefit.
What we do is, we have the Government Pension Offset provision, and what that does is it makes a Social Security offset amount, where we look at two-thirds of the pension you receive from that work, and we offset what you can get as a spouse or even a survivor benefit, which we will talk about. So, if that two-thirds amount of that pension is higher than what you can get from Social Security, we wouldn't be able to pay you anything, or if it's lower than whatever the difference is, we pay out. So there is a factor with pensions when you don't pay into Social Security.
Benz: So even if I've worked my whole career in the public sector, and my spouse has been in the private sector, I may not be eligible for my regular spousal benefit because of that pension that I've been paying into.
Salata: Correct, because as I talked about earlier, with Social Security, we pay one benefit. It's usually the higher of the two benefits. So if you always worked in a public sector, you wouldn't have a Social Security benefit for us to compare to. So to level the playing field, we use two-thirds of that pension since it was in lieu of Social Security benefits, to set up that comparison.
Benz: So there are obviously many different wrinkles going on here, but I'd like to talk about what happens in case of divorce. The spousal benefit is still in effect, correct?
Salata: Correct. If you had a marriage that lasted at least 10 years prior to divorce--so we just look at the date of marriage and then date of finalization, if there was a 10-year span--you're eligible as a divorced spouse on record even if your ex- had remarried or even remarried several times. … As long as you had a 10-year marriage, you would be eligible as a spouse.
One key distinction is when you're currently married, to receive spousal benefits, your other half would have had to file for Social Security benefits and receiving Social Security benefits for you to get spousal. With divorced spouse benefits, we don't have that requirement. As long as the divorce was at least two years ago or longer, you're eligible to file for divorced-spouse benefits without waiting for your ex-spouse to file for their own benefits.
Benz: Another consideration is for surviving spouses. If one spouse has predeceased them, what are the implications in terms of the survivor benefits that are available?
Salata: Well, with survivor benefits, that's where it even throws another wrinkle in because the age is a little different. With survivor benefits, you can receive a surviving spouse benefit as early as age 60 compared to spousal or retirement at 62.
Survivor benefits also do have a reduction, so if you do take benefits at 60, you receive 71.5%. If you're at your full retirement age, you would receive the full amount of the deceased worker, your deceased spouse's benefit.
Another factor involved is if your spouse takes early retirement benefits and passes away, that reduction carries over into the survivor benefits as well. So, it's kind of important when you're planning the Social Security benefits [to remember that] early retirement just doesn't affect an individual's own benefit, but also any future survivor benefits as well.
Benz: So, just to use a real-life example, say the first spouse to die was 75, and the younger spouse is 62. Here she would see their benefit reduced if they filed prior to reaching full retirement age?
Salata: Correct, yes. And that is one of the questions we do get is, well, my spouse was full retirement age or older and had passed away, but what we look at is the filer--so, the surviving spouse--when the surviving spouse begins taking the benefits, that's when we look at the level and compute whether it's going to be a reduced amount if they are taking it before a full retirement age, or if they're already at full retirement age, then it's just that full benefit.
Benz: Well, thank you so much for sharing specifics on these very complicated questions. We appreciate you being here, Andrew.
Salata: Well, thank you for having me, and if you do need any more information, our Social Security website, socialsecurity.gov, does have a survivor page, which gives a little bit more information and planning tools, so that way couples can take a look and see what to expect in the future.
Benz: OK, great. Thank you so much.
Thanks for watching. I'm Christine Benz for Morningstar.com.