How Much is My Spousal Benefit?
Many farmers are approaching retirement and will start collecting social security. However, many farm couples have one primary earner and the spouse may not have any or very little social security benefits of their own. In this case, this spouse is allowed to get up to 50% of the primary spouse’s benefit, however, it may not equal this amount if the spouse retires early.
Let’s go over how the spousal benefit is calculated. First, let’s review the situation when the spouse has no benefit of their own. In that case, the spousal benefit is based upon the other spouse’s primary insurance amount (PIA) at their normal retirement age. This age is currently somewhere between age 66 and 67 depending on the year you were born (before 1955 it is 66, after 1959 it is 67).
The spousal benefit in this case will be equal to 50% of the PIA, however, this assumes that the spouse waits until full retirement age to start collecting. If they start collecting the spousal benefit before full retirement, then the spousal benefit is reduced. For each month before full retirement age, the benefit is reduced 25/36% for up to 36 months. If it exceeds 36 months, then it is reduced by a further 5/12% per month. Unlike normal retirement benefits, there is no increase for each month after full retirement age.
Let’s look at an example:
Mary is age 66 (full retirement age) and her husbands PIA is $3,000. Mary can now elect to claim $1,500 as her spousal benefit. However, now let’s assume that she starts collecting at age 63 (36 months early). In this case, her spousal benefit will be reduced 25% or $375, which means her monthly benefit will be $1,125. Finally, if she starts collecting at age 62, her benefit will fall by another 5% or $75 for a total new benefit of $1,050. If Mary’s full retirement age is 67, an additional reduction of 5% will result.
What happens when the spouse has their own benefit. They will only qualify for the full spousal “offset” if they wait until full retirement age for both their own benefit and the spousal benefit.
The spousal offset benefit is based upon the difference between their PIA and their spouse PIA. This difference is the maximum spousal benefit. If they start at full retirement age, this is what they will get. If they start before full retirement age, then both the spousal benefit and their own benefit will be reduced.
Let’s look at an example:
Mary has her own benefit of $600 at full retirement age. If she starts collecting then, she will receive $600 under her benefit and $900 under her spouse’s benefit. If she starts before that age, then both benefits will be reduced. If she waits to start collecting on her benefit, her own benefit will increase 8% a year, however, the spousal benefit will remain at $900, it will not increase.
Most farmers assume the lower earning spouse will automatically get 50% of their social security benefit. However, this really only applies when the lower earning spouse starts collecting it at full retirement age. Before that date, it will be lower.
Make sure to review this with someone that knows social security retirement planning before applying. Staff at the Social Security Department will rarely give you any advice and their defaults for you may cost you money in the long run.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
What happens if the husband draws Social Security before his full retirement age? Will this affect the amount the spouse would draw, even if the spouse waits until full retirement age?