Dear Rusty: Both my wife and I have worked our entire lives. When we retire, will we both be entitled to a full benefit amount each, or will there always be a spousal factor in there? Also, how are those benefits calculated — based on your highest salaries throughout your career, or your ending salaries when you retire?
Signed: Looking Ahead
Dear Looking Ahead: Prior to retiring from work is a smart time to investigate how Social Security (SS) will fit into your golden years. To answer your second question first, each person’s personal SS retirement benefit is based on the highest earning 35 years over his/her entire lifetime, with earlier years adjusted for inflation. The person’s average indexed monthly earnings (AIME) — essentially the person’s lifetime average inflation-adjusted monthly earnings amount — is first determined. Using AIME, the person’s primary insurance amount (PIA) is calculated using a special benefit formula, which will yield a PIA of about 40 percent or less of the person’s AIME. The PIA is the amount received if benefits start in the month that full retirement age (FRA) is attained.
Since you and your wife were both born after 1959, FRA for both of you is 67. The age when you claim benefits, relative to your FRA, determines how much you will receive. Claim before FRA and your benefit is reduced; claim after your FRA and your SS retirement benefit will be more (up to age 70 when maximum is reached); claim at your FRA and your benefit will equal your PIA — the full (100 percent) amount you’ve earned from a lifetime of working.
Spouse benefits only come into play if the PIA for one of you is less than 50 percent of the other’s PIA. In that case, the spouse with the lower PIA gets a “spousal boost” to his/her own SS retirement benefit when claimed. The amount of the “spousal boost” will be the difference between the lower PIA and half of the higher PIA, but the amount of the “spousal boost” (as well as the person’s own SS retirement amount) will be reduced if benefits are claimed before full retirement age. Any time that SS benefits are claimed before FRA, those benefits are permanently reduced.
If one spouse is entitled to a “spousal boost” from the other, the spousal amount will reach maximum at the recipient’s FRA. Thus, if the lower earning partner’s highest benefit will be as a spouse, then that spouse should not wait beyond his/her FRA to claim. If, instead, the lower earning partner’s own SS benefit at age 70 is more than his/her spousal amount, waiting longer than FRA to claim could be prudent, depending on life expectancy.
So, as you can see, deciding when to claim Social Security benefits should consider many things, including financial need, work status if claiming before FRA, marital status, and life expectancy. But it is your lifetime earnings that determine your SS retirement benefit amount, and it is how your FRA entitlements compare to each other that determines whether spousal benefits will be paid.
Russell Gloor is a national Social Security advisor at the AMAC Foundation, the nonprofit arm of the Association of Mature American Citizens (AMAC). The 2.4-million-member AMAC says it is a senior advocacy organization. Send your questions to: email@example.com.
Author’s note: This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). The NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity.