As a working American, you might be interested in how Social Security benefits work; if you've ever been married, you might also want to know how Social Security spousal benefits work. The way these benefits are calculated and distributed can be straightforward, but Social Security benefits for spouses have recently changed. Here's how the new Social Security spousal benefit rules work and how spousal benefits are calculated, so you can maximize your Social Security benefit.
'Deemed Filing' for Retirement Benefits Has Been Extended
The Social Security Administration previously allowed some married individuals to receive spousal Social Security benefits at full retirement age, delay their own retirement and grow their full benefit amount. The SSA also allowed an individual to apply for benefits at his full retirement age and suspend his payments, which enabled his spouse to collect a spousal benefit while he did not collect his own. That individual could then restart his retirement benefits at his full retirement age and still be entitled to regular increases while they were put on hold.
Those two SSA loopholes that a married couple could use were restricted by the Bipartisan Budget Bill passed in 2015 and are no longer available.
Best places to live on a Social Security check
Best places to live on a Social Security check
Springfield, located in the southwest corner of Missouri, is among the most affordable cities to live when you have $0 saved for retirement. According to Numbeo's Cost of Living Index for 2017, the rent in Springfield is less than 19 percent of that in NYC while the general cost of living plus rent is 41.09 percent.
The average Social Security check each retiree receives here is $1,300.51. That's good news considering you can get a downtown one-bedroom apartment for around $507, or $450 elsewhere.
Best of all, Springfield is a lively town close to recreational areas. Springfield/Greene County has over 100 parks, including Lake Springfield Park, which is perfect for kayaking and canoeing. And you'll find lots of bike paths in and around town as well as lakes and streams popular with fishermen.
Photo credit: Getty
When you're trying to make the most of your Social Security check, look no further than Athens. The city of some 200,000 residents has a cost of living that is 6.2 percent below that of the national average, according to Forbes. Your cost to rent in Athens is less than one-quarter than what you would pay in NYC and, when you factor in groceries, transportation, restaurants and other day-to-day expenses, you'll live in Athens for just 43.88 percent of what you'd pay in the Big Apple.
Since the town is the home turf of the University of Georgia, you'll find lots of low-cost eateries as well as cultural activities. The art and music venues are impressive. Athens is also known for its annual bicycle races called the Twilight Series.
So, how much does a one-bedroom apartment cost in Athens? Count on paying a little over $700 for a downtown apartment and around $600 elsewhere. Considering the average monthly Social Security retirement check in Georgia is $1,304.44, you'll have plenty of cash leftover after bills.
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If you prefer year-round warm weather, consider Tucson, a large city in Arizona's Sonoran Desert. Tucson's cost of living is delightfully low, with rent prices less than a quarter of NYC rent. You can find a one-bedroom apartment for $578 if you don't want to be downtown — $686 if you do.
When you include rent, groceries and other living expenses, a Tucson resident spends only 45.17 percent of the amount spent by NYC dwellers. And, the typical Social Security retirement check here is above the national average, at $1,343.51.
Over half a million people live in Tucson, and the city continues to grow. The downtown is compact, with a small historic district. Nearby you'll find the University of Arizona. Tucson is an attractive city surrounded by several high, forested mountain ranges, including the Santa Catalina Mountains.
Mobile is another city with a cost of living significantly lower than the U.S. average. Move here for retirement and you'll pay just 24.27 percent of NYC rental prices. That means you can get a one-bedroom apartment for between $600 and $650 just about anywhere you live in Mobile.
Once you include food, transportation and other expenses, you'll be paying less than half — 46.28 percent — of NYC prices. But, average Social Security checks are a little lower than what'd you expect, at $1,285.68.
Mobile is located on the Gulf Coast and has a rich history as an antebellum seaport. Today, it remains a major port and is sometimes compared to New Orleans — except a little more laid back.
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Rent in Shreveport comes in at a monthly cost between $700 and $740, depending on your proximity to the city center.
Unfortunately, the average Social Security benefit in Louisiana is just $1,212.05, the lowest of any state, according to a GOBankingRates study on the best and worst states to retire rich.
Still, your cost to live in Louisiana is just 47.08 percent of that in NYC. Meanwhile, Shreveport is a cultural hub in the tri-state area of Arkansas, Louisiana and Texas.
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Billed as "The Biggest Little City in the World," Reno living comes with a lot perks, most notably a cost of living that's less than 50 percent of NYC. Rent alone is just 31.04 percent the cost of NYC dwellings. Surprisingly, it's more expensive living outside of the downtown area. You'll pay around $750 for a one-bedroom apartment in the city center, but closer to $813 outside of it.
Reno's average Social Security check is $1,313.43, and you'll have plenty to do with your leftover money. Truckee River provides access to rafting, kayaking and fishing. There's also tons of festivals happening in Reno at any point in time, like the Reno River Festival and Artown Festival.
Albuquerque is New Mexico's largest city, and it's one of the cheapest places to live. Its cost of living is similar to Shreveport, with rent near the city center at about $760, or about $640 outside the city.
In 2016, U.S. News & World Report named Albuquerque one of the 50 best places to live in America. It described this desert city's appeal as "a blend of modern times and Native American history." Albuquerque has a diverse population and is perhaps best known for its annual International Balloon Fiesta.
You'll also enjoy Old Town, where you'll find numerous restaurants, museums and galleries. One downside for retirees: The average Social Security retirement check received by folks living in Albuquerque is $1,227.11. So, be prepared when your check arrives.
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In a rating of the top states for businesses in 2016, CNBC named Oklahoma the sixth-best state for cost of living. Oklahoma City, the state's largest city, has rent costs between $625 and $850. Between rent, groceries and utilities, you can expect to spend just 47.93 percent what you'd spend in NYC, a comparable amount to living in Reno or Mobile.
Average Social Security benefits come in at $1,277.14 — not the best, but also not the worst.
While you may not think of Oklahoma City as offering a stunning cityscape, National Geographic named it a must-see location in 2015. It gave shout outs to its community boathouse, new West River Trail and rebuilt MidTown.
Photo credit: Getty
FORT WAYNE, IND.
Rent is low in Fort Wayne, about 22.73 percent of what you might pay in NYC. Retirees in this city can find a one-bedroom apartment for around $631, making it an affordable place to live. In fact, the cost of living in Indiana is an estimated 16 percent lower than the national average, according to data from AreaVibes. And Niche, which ranks and review neighborhoods, named Fort Wayne the cheapest city to live relative to income.
Average Social Security retirement benefits are a healthy $1,379.93. Once there, you'll enjoy the Foellinger-Freimann Botanical Conservatory, historical museums and the Black Pine Animal Sanctuary, among other attractions.
Previously, if you were eligible for retirement and Social Security spousal benefits, you had to apply for both benefits if you were not at full retirement age; you would then receive the higher of the two. This restricting of an application is known as "deemed filing" because you are "deemed" to have applied for both benefits even if you only applied for one.
The new law ended that option by extending deemed filing to any retiree of full retirement age, which means that the Social Security Administration will automatically give the beneficiary the highest benefit. A higher earner who applies at full retirement age will no longer be able to collect a spousal benefit if his own retirement benefit is higher. He'll have to either collect his retirement benefit or delay benefits altogether. At the end of 2015, anyone age 62 or older at full retirement age was allowed to restrict an application to spousal benefits only.
Deemed Filing Exceptions
Deemed filing doesn't apply to Social Security survivor benefits. If you're a widower looking to apply for Social Security benefits for widows, you can likely take your survivor benefit separately from your retirement benefit. How are Social Security benefits calculated for a survivor? A survivor still qualifies for 100 percent of his late spouse's benefit. The applicant will be able to claim a survivor benefit first and let his own benefits grow until he reaches age 70. He can also take his own benefit early and claim a survivor benefit at full retirement age, according to Kiplinger.
Another exception to deemed filing includes those who receive spousal and disability benefits. For example, if you receive a spousal benefit because you're caring for a child under 16 or disabled, or if you receive spouse's benefits and are also entitled to disability, deemed filing doesn't apply to you; you're not required to file for your retirement benefit.
25 Social Security facts & figures you need to see
25 Social Security facts & figures you need to see
1. 60.66 million
As of the September 2016 snapshot from the Social Security Administration (SSA), 60.66 million people were receiving monthly benefits, two-thirds of whom are retired workers. A little more than 6 million survivors of deceased workers and 10.6 million disabled persons were also receiving monthly benefits.
(Caroline Purser via Getty Images)
2. 5.44 million
Social Security's beneficiary base is increasing rapidly due to the ongoing retirement of baby boomers, which is expected to last until about 2030. As such, 5.44 million people were newly awarded Social Security benefits in 2015.
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It's important to understand that Social Security isn't an entitlement, though the requirements for a guaranteed benefit are not too high. You need 40 lifetime work credits to qualify for Social Security benefits, and a maximum of four credits can be earned annually. In 2017, one work credit is equal to $1,300 in wages. Simply earn $5,200 in 2017 and you'll have maxed out your work credits for the year. Do that 10 times and you'll be guaranteed benefits when you retire.
Based on statistics from the SSA, nearly all working Americans (96%) are covered by survivors insurance protection. Though Social Security is primarily designed to provide financial protection for retired workers, it does provide benefits for the spouses, children, and in rarer cases parents of deceased workers.
To add to the above statistic, the SSA also points out that 90% of the American workforce is covered in case of long-term disability. Since nearly 70% of all private sector workers have no long-term disability insurance, it's good knowing that Social Security has their back.
An interesting figure from the SSA is that 55% of beneficiaries are women. Social Security income is of particular importance to women since 1) they tend to live about five years longer than men, on average, and 2) they're often the caregivers that take care of the kids or sick family members, thus their lifetime earnings are often lower than their male counterparts'. Social Security income can be critical to ensuring a healthy financial foundation for women come retirement.
According to an analysis conducted by the Center on Budget and Policy Priorities (CBPP), Social Security income has reduced what would be a 40.5% poverty rate for seniors without this added income to just 8.5%. While the CBPP's analysis can't factor in external variables such as how much extra seniors would have saved prior to retiring if Social Security wasn't available, it's clear as day that Social Security is critical to keeping seniors on solid financial footing.
Based on data from the SSA, 81% of all benefits paid out by the Old-Age, Survivors, and Disability Insurance Trust (OASDI) are heading to seniors ages 62 and up. Just 5% go to children under the age of 18, and another 14% to adults between the ages of 18 and 61.
Statistics from the SSA in 2016 show that 61% of seniors rely on Social Security to provide at least half of their monthly income. For elderly couples this figure was 48%, while 71% of unmarried elderly persons lean heavily on the program for at least half of their monthly income.
10. $920.2 billion
The SSA's data showed that $920.2 billion was collected from three revenue channels in 2015. A majority of this revenue came from payroll taxes (86.4%), while interest earned on the OASDI's spare cash (10.1%) and the taxation of benefits (3.4%) comprised the remainder.
Payroll taxes comprise the lion's share of revenue collection for Social Security. This tax totals 12.4% of wages (up to a certain point, which is discussed below) and it's typically split down the middle between you and your employer, with each paying 6.2%. If you happen to be self-employed, you're on the line for the entire 12.4% tax.
There is, however, a cap on how much a person can be taxed by the SSA via the payroll tax. All earned income in 2017 between $1 and $127,200 is subject to the 12.4% payroll tax. Any wages beyond that point are free and clear of being taxed by the SSA.
The September 2016 snapshot shows that the average retired worker is bringing home $1,351.70 per month, or $16,220 over the course of a year. Annual benefit increases are tied to the inflation rate as measured by the Consumer Price Index for Urban Wage Earners and Clericals Workers, or the CPI-W.
Speaking of inflation, Social Security beneficiaries are getting a 0.3% cost-of-living adjustment (COLA) in 2017, the smallest increase on record. Social Security's COLA has been dragged down in recent years by weaker energy and food costs, which are sizable components of the CPI-W.
15. 33 out of 35 years
One of the more saddening facts and figures about Social Security is that its COLA has been lower than medical cost inflation in 33 of the past 35 years. The CPI-W factors in a number of varied expenses, but medical costs are a much smaller portion of workers' average expenditures. Seniors spend double what urban wage earners and clerical workers do on medical costs as a percentage of their annual expenditures.
Social Security benefits are capped at $2,687 per month, which makes sense given that payroll taxes have an annual cap as well. The monthly benefit cap is usually adjusted year-to-year based on inflation. Only a small fraction of Americans have a shot at reaching this maximum payout, as you'll see in the next figure.
Based on data from 2013, as assembled by the Centers for Retirement Research at Boston College, 60% of retirees sign up for benefits before reaching their full retirement age (FRA). A person's FRA is when they become eligible to receive 100% of their FRA benefit. By signing up early, retirees are taking a cut in benefits from their FRA benefit of up to 25% to 30%.
As of 2015, the worker-to-beneficiary ratio stood at 2.8 workers for every one beneficiary. In about two decades, this ratio is forecast to drop to 2.1-to-1. In simpler terms, baby boomers are retiring in increasing numbers, and there simply aren't enough new workers to take their place and maintain the worker-to-beneficiary ratio at its current level. This leads to the next point...
20. The year 2020
Based on the latest report from the Social Security Board of Trustees, by 2020 the cash inflow into the OASDI is slated to turn into a cash outflow. In other words, what's expected to be close to $2.9 trillion in spare cash will begin dwindling in 2020.
21. The year 2034
Perhaps the scariest finding of the Trustees' report is that Social Security's spare cash is expected to be exhausted by the year 2034. Assuming Congress passes no new laws affecting Social Security, the Trustees predict that an across-the-board benefits cut of up to 21% may be needed to sustain payouts through the year 2090.
Findings from the Board of Trustees report also showed that the actuarial deficit in 2016 was 2.66% for the program. In easier-to-understand terms, a 2.66% increase to the payroll tax would be expected to alleviate all funding concerns through the year 2090. This would mean an increase to 7.53% if you're employed by someone else, or 15.06% if you're self-employed.
It's a fact that gets overlooked by many seniors, but Social Security income may be taxable. Individuals earning more than $25,000 annually and joint filers with income over $32,000 could have a percentage of their Social Security benefits taxed. Not to mention 13 states also tax Social Security benefits.
According to Gallup, 51% of polled Americans in 2015 believed Social Security won't be there for them when they retire. Luckily, this is blatantly false. Social Security is essentially incapable of going bankrupt because it'll always be collecting payroll tax revenue from the workforce. Benefits may indeed need to be cut, but the program will be there for many generations to come.
Finally, a survey conducted by MassMutual Financial Group in 2015 found that just 28% of the more than 1,500 respondents who took its quiz received a passing grade and correctly answered at least 7 out of 10 multiple choice or true/false questions. Only 1 respondent out of more than 1,500 got all 10 questions correct. It's a stark reminder of just how little Americans know about Social Security.
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File-and-Suspend Rules Are More Strict
The file-and-suspend rule previously allowed an individual at full retirement age or older to apply for Social Security benefits and immediately suspend them so his spouse could collect spousal benefits. The individual could then restart benefit payments later and enjoy the increase he received each month the suspension lasted. But if you turned 62 on Jan. 2, 2016 or later, you can no longer collect a spousal payment and an individual payment at different points in time.
You can still voluntarily suspend your benefits at your full retirement age and receive more money for each month of suspension, but the new law states that if you suspend your benefits, you must suspend other related benefits. That means you would have to suspend your spousal benefit as well.
The new law applies to anyone who requests a suspension of benefits on or after April 30, 2016; or, 180 days after the new law was put into place. To request a suspension, you must have reached your full retirement age.
Originally, the Social Security Administration paid spousal benefits only to the extent that they exceeded other benefits that the spouse earned. The rules have changed so that benefits can remain fair.
"The change in the law preserves the fairness of the incentives to delay, but it means that you cannot receive one type of benefit while at the same time earning a bonus for delaying the other benefit," according to the Social Security Administration.
More Social Security Changes in 2017
According to the Social Security Administration, more changes are coming to Social Security in 2017. Among these changes will be a small cost of living payment increase, a higher tax cap and increased earnings limits. However, there don't appear to be any more changes associated with spousal benefits planned, yet.
Retirement planning can be confusing, and you might have questions about your Social Security benefits. Questions such as "What is the maximum Social Security benefit I can get?" or "What Social Security benefits are widows entitled to?" might best be answered by a qualified financial professional.
If you think you're ready to apply for Social Security, make sure you have all the information you need to get your maximum Social Security benefit and ensure a stable financial future for your retirement years.