Social Security: Understanding the Spousal Benefit

Q: My neighbor is 62 years old and recently filed for Social Security benefits. She told me she was receiving half of her husband's benefit, but I recall there was a penalty for filing early. Am I correct?
A: As with any question on Social Security, I turn to my Right Financial Plan co-author Tiya Lim, as she is the expert in this area. Here's what she had to say.

Yes, taking Social Security benefits prior to your full retirement age (FRA) results in a reduction of benefits.

If you're eligible to receive a spouse's benefit, you can receive up to 50 percent of your working spouse's full retirement benefit, also known as the primary insurance amount (PIA). So in your neighbor's case, she could receive up to half of her husband's PIA -- the amount he would receive at FRA. But if she files before FRA, she will receive less than 50 percent.

For example, if her FRA is 66, then the following reductions would apply:

File at 62 -- receive 35 percent of spouse's PIA
File at 63 -- receive 37.5 percent of spouse's PIA
File at 64 -- receive 41.7 percent of spouse's PIA
File at 65 -- receive 45.8 percent of spouse's PIA
File at 66 -- receive 50 percent of spouse's PIA

The maximum spouse's benefit is 50 percent, so unlike a worker's retirement benefit, there's no reason to delay filing for a spouse's benefit past FRA. Also note that the spousal benefit is always calculated using the working spouse's PIA, not the higher benefit a spouse might receive if they delay filing past FRA.

So why did your neighbor think she was receiving 50 percent of her husband's benefit when she filed at 62? Here's a hypothetical example to show how she might have come to that conclusion:

Her husband's full benefit is $1,000 per month. He takes benefits at 62 and receives a reduction of 25 percent, so his benefit is $750 per month.
She is eligible for 50 percent of her husband's PIA (even though he filed early), but only at her FRA. She takes early at 62 and receives 35 percent of husband's PIA which is $350 per month.

While it isn't half of her husband's benefit, it's close to half which is where the misunderstanding may be coming from. Even though her husband took benefits early, she could have received $500 per month since her benefit is calculated off of her husband's PIA and not his actual benefit received.

For further reading on Social Security, see the following posts:

File and Suspend
Double Dipping
Former Spouses
How Are My Benefits Calculated?
Single Filers
Understanding the Spousal Benefit
Government Pensions: Offset Provision and Windfall Elimination Provision
The Issues with Taking Benefits Early and Investing Them

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Larry Swedroe

Larry Swedroe is director of research for The BAM Alliance. He has authored or co-authored 13 books, including his most recent, Think, Act, and Invest Like Warren Buffett. His opinions and comments expressed on this site are his own and may not accurately reflect those of the firm.

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