Calculating Social Security Spousal Benefits with Dual Entitlement

hey everyone in today's video i want to cover something that causes a lot of confusion and that's calculating the spousal benefit for a spouse who also has their own benefit now this is one of those things that we've talked about before but it's buried up in one of the longer videos so i wanted to strip this out and cover it on its own so you'll know exactly how this should be calculated now if you want a full rundown of spousal benefits see the link in the description for the video where we cover spousal benefits from top to bottom today is just for calculating spousal benefits for a spouse who also has their own benefit now before we get into this if you are new here be sure to subscribe and hit that notifications bell so you won't miss any of the new content i put out lots of stuff coming in the future including the announcement of my insider's club so you got to stay tuned to hear all of that so today i want to talk about spousal benefits but specifically i want to talk about calculating the benefit for a spouse who is dually entitled now don't let that term scare you with its extremely technical name the term duly entitled simply means that someone's entitled to more than one benefit at a time and for purposes of today's video we're going to talk about when someone is entitled to a benefit from their own work and a spousal benefit according to the congressional research service there are over 3 million spouses who are receiving a benefit based on dual entitlement no surprise but 97 of these individuals are female while that's an interesting note it really doesn't matter since the social security rules on spousal benefits have been gender neutral since 1950. now the easiest way to understand the concept of spousal benefits is to think of them as a promise that at full retirement age the lower earning spouse will not receive less than one half of the higher earning spouse's full retirement age benefit for example let's assume we have a couple that follow the statistics of the social security administration where the husband worked outside the home and paid into social security and the wife managed the home and thus did not pay into social security at four retirement age the husband had a benefit of two thousand dollars since the wife had never earned the required 40 credits she does not have a benefit of her own however as an eligible spouse she'd be eligible for a spousal payment of a thousand dollars at her full retirement age of course now if she filed for that benefit early it would be reduced based on the age that she filed so let's expand this example to see how dual entitlement works let's assume again that the husband has a full retirement age benefit of two thousand dollars this time the wife has her own benefit of eight hundred dollars remember it for retirement aids the lower earning spouse can get the greater of her benefit or one half of the higher earning spouse's benefit so in this case the wife is still eligible for a total benefit of one thousand dollars but she'll receive her own benefit of eight hundred dollars first and then a spousal payment of two hundred dollars to get her up to the full one thousand dollars he is eligible for here's what's really important to know about this these are actually two separate benefits all rolled into one payment and the easy way to understand how this may apply in your situation is a simple formula that's one half of the high benefit minus the low benefit equals spousal payment so in the example we used of the husband and wife it would work out like this one half of the high benefit is one thousand dollars minus the low benefit of 800 equals the spousal payment of 200. you may be thinking to yourself now devin listen if the result at the end of this calculation is still one half of the higher earning spouse's benefit what difference does it make why are we doing this video and talking about this well it's important to understand because your own benefit and your spousal payment are not calculated the same when it comes to reductions for filing early or increases for filing later let me show you what i mean i'm going to make the assumption that you're the one who will be receiving the spousal benefits throughout this example in the center we have your filing gauge to the left we have the reductions or increases to your own benefit and to the right we have the reductions or increases to your spousal payment let's make the assumption that your full retirement age is 67 and that's for anyone who's born in 1960 or later so at full retirement age you would receive 100 of your own benefit and you'd also receive 100 of your spousal amount if you file a year early at 66 you'd receive 93 and a third of your benefit and 91 and two-thirds percent of your spousal amount at 65 it would be 86.66 percent of your benefit and 83 and a third of your spousal amount now you can see that difference in reductions between your benefit and the spousal benefit continue to widen all the way back to the earliest age of filing 862. the other notable part of the difference is that your own benefit will increase if you delay filing but your spousal payment will not increase so just to make sure we are real clear on how a spousal benefit will actually be reduced let me walk you through an example where we use dollars this time let's continue with the example where the higher earning spouse has a full retirement age benefit of two thousand dollars and the lower earning spouse has a benefit of 800 now in the far right column i'll sum up both benefits for the total payment for what we've covered so far we know that the lower earner is entitled to a total benefit of a thousand dollars at full retirement age because that's one half of the higher earnings spouse's full retirement age benefit however that benefit would be paid as eight hundred dollars for her own benefit and a spousal payment of two hundred dollars these two benefit amounts would be reduced or increased separately based on age of entitlement and just a note here entitlement is an important word and i'll get back to that in just a moment but for this example we'll just assume that they are entitled to both benefits at the same age so at full retirement age the lower earner would receive 800 from her own benefit and 200 as a spousal payment for a total benefit of a thousand dollars and as you move back through the earlier filing age you can see how each benefit is reduced all the way down to age 62 where the total payment would be 690 on the other side of full retirement age you can see that the benefit from your own work increases but not the spousal payment because that amount will not increase beyond full retirement age so far this is relatively easy to follow we've established that a dually entitled spouse will receive their own benefit first and then a spousal payment to get them up to one half of the higher earning spouse's full retirement age benefit and that both of these payments would be reduced separately for filing before or after full retirement age but now there's a small wrench i'd like to throw into the machine to make this interesting and this is something you need to know this next calculation has confused a lot of people what happens if someone files for their own benefit but is not yet eligible to receive the spousal payment now this happens fairly often due to the rule that says before a spousal payment can be paid the higher earning spouse must file first so let's take this back to the chart and see how this would work out let's assume that the lower earnings spouse has reached full retirement age and they file for their benefit of 800 if the higher earning spouse has already filed they'll get the spousal payment of 200 but if they haven't already filed the lower earnings spouse will not get the spousal payment so their total payment would only be 800 and that goes for any age the lower earning spouse files if the higher earning spouse has not yet filed they can't get the spousal payment so a total benefit payment would only be the lower earning spouse's benefit reduced or increased for filing age so let's step this up to a likely scenario where the lower earning spouse files for benefits and then two years later the higher earning spouse files for benefits thus entitling the lower earnings spouse to the spousal payment so how would this be calculated well it's simply based on the age of entitlement let's go back to the chart and look at an example let's assume the lower earning spouse files for their benefit at 62 should start receiving 560 which is 70 of her full retirement age benefit since the higher earning spouse hasn't filed yet she would not receive a spousal payment but if her spouse filed two years later she would become entitled to a spousal payment and here's the important part it would be her age of entitlement to the spousal payment that would determine how that portion would be reduced not her age when she filed for her own benefit now i've gotten a few emails and messages from people who have told me that their financial advisor didn't agree with the way i calculate this so in the description below i'm going to put some of the links to the pertinent section of the administration's website like this one that i've got up on the screen now where these calculations are discussed and one last thing i think is important for those to know that really want to grasp the fine details of this calculation is understanding how the reductions are calculated on a monthly basis there are three separate bands that you have to know about there's more than 36 months from full retirement age within the 36 month window of full retirement age that 36 month immediately prior to full retirement age and then after full retirement age for the band of more than 36 months away from full retirement age the spousal benefit and your own benefit are reduced the same it's 5 12 of 1 per month reduction within the 36 month window spousal benefits are reduced by 25 36 of 1 and your own benefit is reduced by 5 ninths of one percent after full retirement age spousal benefits are not increased at all but your own benefits are increased by two-thirds of one percent per month hey i know we've covered a lot of ground in this video but i hope it's helpful when you're planning how to file for social security as always if you have questions leave them in the comments below and be sure to hit that like button too if you haven't already hey if you've made it to the end here you must like the content because this was pretty heavy stuff and if you want more of this be sure to hit that subscribe button before you leave thanks for watching

Channel: Devin Carroll

Views: 137,045

Keywords: social security, retirement, devin carroll, retirement planning, social security disability

Id: vH7nkC_katc

Length: 11min 7sec (667 seconds)

Published: Fri Aug 28 2020