Social Security: Keep This in Mind Before Claiming Spousal Benefits

If you're about to claim spousal benefits stemming from your partner's work history, there's one misconception you need to clear up now: Although your monthly benefit will be reduced for claiming it before full retirement at age 66, you're not rewarded for waiting even a single day past then.

Spousal benefits vs. retirement benefits
If you're familiar with the Social Security system, this may come as a surprise. Under the formula that allots retirement benefits, there's a significant incentive for prospective retirees to wait as long as possible before claiming benefits:

If a retiree applies at the earliest possible moment -- that is, the month after turning 62 -- then that person's benefits are docked by 25%. But if he or she holds out beyond full retirement -- currently age 66 -- then the opposite is true.

For every full year of deferment between ages 66 and 70, your monthly benefits increase by 8%. The maximum boost to a retiree's check equates to an impressive 32%.

But spouses, by contrast, only get the downside of this. In other words, if you apply for spousal benefits early, then your monthly take is subject to early benefit reductions.

And as the following table shows, the decrease is sharper for spouses than it is for primary beneficiaries.

A spouse that takes benefits at age 62 sees his or her monthly check fall by 30%. Alternatively, a retiree doing the same thing sees his or her benefits reduced by only 25%, or 5% less than a similarly situated spouse.

To add insult to injury, moreover, there's no payoff for a spouse to wait beyond age 66, because spousal benefits are capped at 50% of the primary retiree's benefits, irrespective of when they're taken.

Now, just to be clear, this has absolutely no bearing on survivor benefits. That is, if the primary beneficiary predeceases his or her spouse, then the spouse steps into the primary beneficiary's shoes, if you will, for the purposes of Social Security.

With all of this in mind, the takeaway here is simple. If you're on the verge of claiming spousal benefits, I'd urge you to do so no later than the month after turning 66, as waiting any longer could cause you to needlessly leave money on the table.

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