Some clients get under the hood and tinker with their various Social Security strategies. Then, they turn to their financial advisor for confirmation and any missing information.
Here is an example of an engaged pre-retiree I heard from via email. He wanted confirmation of his Social Security assumptions and calculations. It's great when clients are fully engaged, willing to dive into the details, and open for help connecting the dots.
A Spousal Benefits Question
"I am particularly interested in the filing strategies for married couples," Joe wrote (not his real name). "I have a question regarding spousal benefits that I was hoping you could answer/confirm."
He continued: "I'd like to summarize my understanding and ask my questions in the form of a hypothetical situation."
Let's assume the married couple, both born in 1960, are trying to decide when to claim Social Security. Full retirement age (FRA) for each is 67, and their primary insurance amount (PIA) benefits are:
- $2,400/month — husband
- $800/month — wife
Joe calculated three scenarios to look at possible claiming strategies.
Scenario 1: Husband and Wife Both File at FRA
"If they each claim at FRA, his benefit is $2,400 and hers is $1,200, composed of her own $800 plus a $400 top-up. Correct so far?" Joe asks.
Joe's initial thought is correct, but with one timing detail. If she is older, say born in January, and his birthday is in August, she will have to wait for the spousal top-up until Joe claims in August at his FRA. Spousal benefits are only available once the higher-earning spouse claims their benefit.
Scenario 2: Wife Files Early, Husband Files at FRA
"By claiming early at 62, the wife's own retirement benefit will be a reduced amount, to about $560/mo," Joe estimates in his hypothetical scenario. "Then, when the husband files at 67, his benefit is $2,400/mo and the wife's increases to $960/mo, composed of her reduced $560 plus the same top-up of $400. Did I get that right?"
Joe almost is correct, but again, there is a timing caveat. When the wife claimed her own benefit, she was deemed to file for all her eligible benefits. This means she also claimed her spousal benefit even though she can't yet collect it.
Once the husband claims, her spousal top-up will be added. If she is younger than her FRA when her husband claims, she'll get a reduced spousal top-up.
