Welcome to the Bowman financial strategies, Retirement Made Simple series. Your host is Erik Bowman, retirement income certified professional and certificate holder of the national social security association.

Today, we are going to be talking about social security spousal benefits. Now, one of the, I think biggest misconceptions out there is that social security spousal benefits are equal to 50% of whatever the higher wage earner is getting in benefits. Or 50% of whatever my spouse gets is what I will get would be another way of thinking about it. If you thought that was the case, that your spousal benefit would be 50% of whatever your is getting, unfortunately, you are wrong. If you've calculated a retirement income plan, based on that, you might want to recalibrate that retirement plan; because if you overstated the income that was going to be coming in from social security you may need to think about either adjusting your expenses or adjusting your social security filing timeline. 

So, the actual amounts that you will get is the maximum of 50% of the higher wage earners, primary insurance amount. Now just as a refresher, and we have a short video on our website and on YouTube that talks about what PIA or primary insurance amount is and what full retirement age is; and I highly recommend watching those. But PIA, the primary insurance amount is the amount that the higher wage earner gets at full retirement age and their full retirement age let's say is 67 years old, it really depends on the year of birth. But, 50% of the PIA and no more than that, that's the maximum amount that you could get.

So, let's talk about these five rules that you must understand about spousal benefits and then we're going to give you an example or two to really show conceptually how your benefits calculated and what could reduce it. 

So, the first rule is, and this is black and white, rule number one is the higher wage

earner must be actively taking their social security benefit in order for the lower wage earner, to be able to draw the spousal benefit. That's black and white, a must have, and commonly, commonly not known. 

Second, your spouse is filing age does not impact your spousal benefit. Rule number one still applies, they have to be taking the benefit for you to file for a spousal benefit. But if they filed at age 62, for example, early, the higher wage earner, your spousal benefit is still calculated as 50% of their PIA, which is what they would get at full retirement age.

Rule number three is if you take a spousal benefit prior to your full retirement age, now that will affect your spousal benefit amount and you're going to get less if you take it before your own full retirement age. 

Rule number four is if your personal benefit greater than the spousal benefit calculation, you're going to get your benefit. You don't get both. You're going to get one or the other, either your benefit or the total spousal benefit amount. You're not going to get both added together. 

Rule number five is your spousal benefit does not increase by delaying past your own full retirement age. Key, key finding, because what this means is if you qualify for a spousal benefit and the higher wage earner is already drawing there's, you would never want to delay taking your spousal benefit another day. You would turn that on right away if it was greater than your own benefit based on your own earnings record. 

So, let's go through a quick example here. How are spousal benefits calculated? How do you kind of make that decision and how do you impact the amount and make it either decrease or increase? Step one, we have a husband and wife and this illustration, the husband is the higher wage earner. His primary insurance amount is $3,000 a month. That's the amount that he's going to get at full retirement age. Multiply that number by 50%. And we get $1,500 a month. Now we're going to compare the $1500 a month to the $1000 a month, which is the amount that she would get on her own earnings record. The $1500 is higher So now that's the target spousal benefit, $1,500 per month. 

Now with the next graph, what you can see is that the spousal benefit actually consists of two pieces. The pinkish part of the graph represents her primary benefit and the blue represents the spousal benefit kicker. When you add those two together, that's the complete spousal benefit you would receive as one check on a monthly basis. But you can see that from age 62, up to full retirement age of the person filing for the spousal benefit, that the amount you get increases to that maximum of $1,500. And we're assuming that full retirement age for the person filing for the spousal benefit is 67 here. So, if they take the benefit at 62, the earliest possible time, assuming that their husband is taking the benefit which would allow you to take that spousal benefit, you can see that you get less. As a matter of fact, you only get 68.3% of that $1500. So that's the calculation. 

If you wait a year until you're 63, you see that you get a little bit more. And if you wait until another year, you get a little more until you cap out at full retirement age, where the maximum amount you can get is that $1,500 a month. In all of these examples, just take note we are not including “COLA” or cost of living allowance or the increases to social security that can happen on an annual basis to keep up with inflation of wages. These were done in a more simplistic fashion so it's easier to understand. 

And the reason why you need to understand these five rules and to have some knowledge of how this is calculated is so that you have an accurate retirement income plan. If you have inaccurate numbers or you're overstating your social security benefit, or you think you could file for the benefit when you actually can't, you could build an entire retirement plan on false information and have to really redo that significantly. Which could result in maybe having to reduce your expenses in retirement, which is not what I'm sure you would intend to do. 

I hope you found this information helpful. I really appreciate you coming by today and watching it. If you're on our website, please explore all of the other videos that are available on all retirement topics. That would be important to you. And if you're on YouTube, please subscribe to our channel and like our video. So, we can keep on bringing you retirement planning content that can help you make more informed decisions. Thanks a lot for watching today. 

To watch other webinars, go to Bowmanfinancialstrategies.com and learn about topics like social security, maximization, Roth conversions, and tax efficient distribution strategies and retirement.