July 25, 2014

Judith Ward Judith Ward, CFP®, is a senior financial planner and vice president of T. Rowe Price Investment Services.

Enhance your income in retirement with the benefits available to you.

Married individuals generally are eligible to receive a monthly Social Security benefit worth up to 50% of the amount their spouse would receive at his or her full retirement age. This benefit is based on your spouse's employment history, not your own. As a result, you may be eligible to claim it even if you've never worked outside the home.

This distinction makes the spousal benefit an important tool, particularly for couples in single-earner households. "For a benefit that few couples may understand, the spousal benefit can be another welcome source of income," says Judith Ward, CFP®, a senior financial planner with T. Rowe Price. "Understanding the rules enables you and your spouse to use it to your best advantage."

Maximizing the Spousal Benefit

The amount of the spousal benefit is based on when you (the spouse) initiate it. However, the working spouse must either currently receive benefits or have "filed and suspended" receiving his or her own benefits. "File and suspend" allows one spouse (for example, the husband) to file for benefits at full retirement age then suspend the payment of those benefits until age 70. This allows his wife to file for a spousal benefit, providing a stream of income while he delays payments. Your monthly spousal benefit amount will be highest if you wait to claim it until your full retirement age. While you can claim spousal benefits starting at age 62, initiating these benefits before your full retirement age will reduce the amount you receive. (See The Spousal Benefit Equation.) However, your spousal benefit will not be reduced if your husband or wife started receiving benefits early. Also, if you initiate spousal benefits before your full retirement age, you are no longer eligible to receive potentially higher benefits based on your own work record later.

Strategies for Dual-Earner Households

The spousal benefit is not limited to couples with only one working spouse. Individuals who are entitled to receive their own retirement benefits through Social Security may be able to collect a percentage of their spouse's benefit as well. Say your husband or wife is already collecting benefits or "files and suspends" his or her own benefits. You can start receiving spousal benefits at your full retirement age and delay initiating benefits based on your own work history up to age 70, thereby maximizing your own benefit. When you begin receiving your own benefits, the spousal benefit ceases. This technique is called "restricted application for spousal benefits."

This strategy provides couples with an income stream for up to four years while potentially allowing both spouses to maximize their Social Security benefits. In particular, if the spouse with the higher benefits waits to take his or her benefits until he or she is 70, whichever spouse survives will be eligible to receive the higher of the two possible benefits from Social Security. However, it's important to note that only one spouse can apply for a spousal benefit at a time. In addition, you cannot receive a spousal benefit and your own benefit at the same time.

Benefits for Former Spouses

Even if you are no longer married, you may be able to receive spousal benefits based on your former spouse's work record. Your eligibility is contingent on the following conditions:

  • You are currently unmarried.
  • Your former marriage lasted 10 years or longer.
  • You have been divorced for at least two years.
  • You and your former spouse are age 62 or older, and your former spouse is entitled to Social Security benefits.

The good news is that your former spouse does not need to know that you've filed for a divorced spousal benefit, nor does he or she need to have filed (or filed and suspended) for his or her own Social Security in order for you to claim it. However, the other rules about initiating your divorced spousal benefits early are the same as those for married couples. Most importantly, if you claim it prior to your full retirement age, the spousal benefit will be reduced. If you wait until your full retirement age to initiate spousal benefits, you can restrict your application to divorced spousal benefits only and then file based on your own work history, at age 70, maximizing your own benefits.

The Spousal Benefit Equation

A Flexible Tool

When and how you claim your Social Security spousal benefit is an important decision that can have a sizable impact on your future income. You and your spouse should work together to develop a strategy based on your needs, your desires, and the other resources you have available for retirement. "For some couples, spousal benefits may be a significant source of retirement income," says Ward. "For others, it may be icing on the cake."

Analyze your Social Security options with the T. Rowe Price Social Security Benefits Evaluator at troweprice.com/socialsecurity.