Earlier this month, I attended a CPA continuing education course about Social Security. I was surprised to find the following statement in the course’s text*:
“The most overlooked benefit in two-earner situations is the possibility of both spouses electing a spousal benefit. This requires each spouse to have claimed his or her own retirement benefit so the other can claim the spousal benefit.”
The book then provides an example:
“Jack and Jill are both 66. Jack has a PIA of $2,500, Jill a PIA of $2,000. [Mike's note: "PIA" stands for "primary insurance amount," and it refers to the size of your retirement benefit if you claimed it precisely at your full retirement age.] Jill can claim and suspend yet receive a spousal benefit of $1,250. Jack can claim and suspend and claim a spousal benefit of $1,000.”
The book then explains that each spouse can thereby allow his/her own retirement benefit to continue growing until age 70, at which point they can ask to have payments unsuspended.
Unfortunately, this strategy doesn’t work. And by trying to implement it, the couple could lose out on $60,000 of benefits that they could have collected between age 66 and 70 if just one spouse (ideally, Jack) had filed and suspended while the other spouse had filed a restricted application (for just spousal benefits) at full retirement age.
Why This Strategy Doesn’t Work
The reason the strategy proposed above does not work is that you cannot collect a spousal benefit if you are “entitled” to a retirement benefit or disability benefit and your primary insurance amount is greater than 50% of your spouse’s primary insurance amount.
To be “entitled” to a benefit in the way the Code of Federal Regulations uses the term, you must have filed for the benefit. And, after you have filed, even if you ask to have payments suspended, you are still “entitled” to that benefit (even though you will not be receiving the actual payments).
So, in the book’s example of Jack and Jill, both spouses — having filed for their retirement benefits — would be entitled to a retirement benefit that is based on a PIA that’s greater than 50% of their spouse’s PIA. As a result, neither spouse would be eligible to receive a spousal benefit.
In contrast, if you haven’t filed for your own retirement benefit (and you’ve reached your full retirement age), it’s possible to file a restricted application for just spousal benefits, while allowing your own benefit to grow. In other words, in the book’s example, if only one spouse had filed and suspended, the other spouse would be able to file a restricted application for just spousal benefits — thereby allowing both retirement benefits to grow until age 70 while one spouse receives a spousal benefit in the meantime.
*I’m intentionally omitting the name of the course provider and the book. My goal is not to criticize but simply to make sure that people know not to try this strategy.