Listener Q&A: Social Security Spousal Benefits, Ep #136

There’s a lot of misunderstanding circulating regarding social security claiming strategies with spousal and survivor benefits. Spousal benefits and survivor benefits can be confusing and difficult to understand. So in this episode of Retirement Made Easy, I’m going to tackle this topic. I’ll also cover the FairTax Act of 2023 and why you shouldn’t make changes to your retirement planning based on this act just yet. Don’t miss this informative episode!

You will want to hear this episode if you are interested in…

• [3:16] The basics of the FairTax Act of 2023
• [10:20] The spousal benefit vs. survivor benefit
• [14:45] Planning social security around spousal benefits

The basics of the FairTax Act

The Fair Tax Act is a sales tax bill that was introduced by Republicans to abolish the IRS. It would change the tax code as we know it. I keep getting asked: What’s a good strategy in response to the bill that might become law?

Let’s backtrack a little first. The act proposes getting rid of the IRS and Federal income taxes across the country. It would institute a 30% sales tax on top of local and state taxes. Why? Because 40.1% of US households didn’t pay Federal income taxes in 2022. These Republicans want to recoup money from these households to help cover Medicare and Social Security.

Think of what inflation would be if you had a 30% sales tax. The price of goods and services would go up a lot. It would be offset by the amount you’d be saving on Federal taxes, so your paycheck would go up. But would it offset too much? Would you end up paying far more?

I’m not a proponent of this bill. My response to the questions I’m getting is this: We aren’t going to change your retirement plans based on a rumor or possibility. Biden says he’d veto the bill if it got to him. I wouldn’t make any changes until this became law.

The spousal benefit vs. survivor benefit

A listener—who I’m going to call Lisa—was married for 20 years and has been divorced for five. She wanted to claim her spousal benefit based on her ex-husband’s earnings. She met the time requirements for claiming an ex-spouse. But she was under the impression that if she claimed benefits at 62, she could claim half of her husband’s benefit and then claim his entire benefit at his full retirement age. She was misinformed.

At her full retirement age, she can get half of her husband’s “Primary Insurance Amount” or PIA, which is his benefit at his full retirement age. So if his benefit is $3,000 a month, she could claim half of that. If she claimed it when she was 62, it would be further reduced. When would she get the full benefit? If he passed away, she’d be eligible for the survivor benefit.

Planning social security around spousal benefits

I spoke with a couple who was clear that social security would be a large part of their retirement income. Someone had misinformed them about how the benefits worked. She was 62 and he was 58. Let’s call them John and Joan.

Joan wanted to claim her benefit at age 62. Her benefit was lower than her husband’s. She thought it would be dumb to let it sit and not collect it. Then, when he hit full retirement age, she planned on claiming her spousal benefit (50% of her husband’s benefit).

But to get the spousal benefit, her spouse has to claim his benefit first. However, when Joan is 67, she won’t get the full spousal benefit. Why? Because she collected her own benefit at age 62. Social Security will reduce her spousal benefit because she had claimed her own.

What happens if she waits until full retirement age to claim her benefit? Listen to the whole episode to learn more about collecting spousal benefits.

Resources & People Mentioned

• 3 Steps to Retirement Planning
• The FairTax™ Act