Is your glass half empty? Or half full? When it comes to Social Security retirement benefits, spousal survival benefits can top that glass off. How? Many of the rules that govern Social Security can be confusing, but this particular concept causes a lot of misunderstanding. A question that often stumps my readers is how spousal survival Social Security retirement benefits work.
How are Social Security retirement benefits determined when recipients are married?
First, here’s a quick, simplified review of what Social Security is. When you are younger and working, each paycheck you get from your employer has tax (called FICA tax) taken out as your contribution to the Social Security system. The amount is a percentage of what you actually make each paycheck rather than a flat amount that everyone pays, so people who earn higher salaries pay in more to the system than those who earn less. The Social Security Administration (SSA) keeps a readily available record of what you’ve paid in each year. High earners pay in more than lower earners over the years of working. When your monthly Social Security retirement benefit is calculated, it is based on the amounts you paid in over your 35 highest-earning years. Think about it this way: workers who made about $40K per year in salary throughout their working lives will have paid in far less than workers who made a salary of $100K. In addition to basing benefit amounts on contributions, the SSA uses the highest 35 years of a person’s earnings in the calculation. Therefore, a person who worked for 50 years will have benefits based on their highest 35 years of earnings in contrast to a person who did paid work for just 15 years (perhaps because of child- or elder-care responsibilities or illness), who would have 15 years of their salary plus 20 years of zeroes that the SSA would use to calculate their benefit amount.
I explain this contribution process so minutely because if you are a person with lower earnings or less than 35 years of contributory work, you are likely to have a relatively low Social Security retirement benefit for all the years you collect it. A low benefit amount can affect your post-retirement standard of living. People today often live very long; if you start your Social Security at age 66 and live until age 90, you will depend on those benefits for 27 years. So if your monthly Social Security retirement benefit is $950 per month ($11,400) per year, that’s how much you’d get for those 27 years post-retirement (with small cost-of-living increases in years they are offered).
But what if you are married to a person who earned far more than you did? What if, for example, your spouse is entitled to a monthly Social Security retirement benefit of $2,150 per month ($25,800 per year). While your spouse is alive, you could receive either your benefit amount ($950 in this example) or half of your spouse’s amount ($1075), whichever is higher. While your spouse is alive, the difference isn’t substantial. However, when your spouse passes away, you would get his/her full amount (instead of your lower amount or half of his/her amount). That means in this example, that you would receive $2,150 monthly for the rest of your life instead of $950 monthly. It’s true that your family total income would decrease after you lost your spouse because instead of getting BOTH your amount and your spouse’s amount each month, you’d only be drawing one payment, but it can be comforting to know that you won’t lose out on as much as if this rule were not in place.
Here are more examples.
Let's imagine that David and Missy are married. They wait until they are 70 years old to claim their Social Security to ensure the highest amount possible. David earned more over his lifetime than Missy and so he paid more into the system and has a high monthly benefit of $2,200. Missy stayed home with the kids and worked at lower-paying jobs, so her monthly benefit is $700.
During David’s lifetime, he gets $2,200 per month and Missy gets half of that (or $1,100), which is more than her $700. So each month, they have $2,200 + $1,100 or $3,300 in Social Security benefits coming in. Let's say that David dies. Missy gets a one-time $255 death benefit, and then going forward, she gets David's full amount of $2,200. She still has less cash flow coming into the home because she is NOT getting her amount PLUS David's amount, but she is entitled to David's full amount of $2,200 after his death, which is better than her $700 or half of his $1,100, especially if Missy and David had no pension and few savings and Missy ends up living for another 25 years.
You can read extensively about spousal survival Social Security retirement benefits on the Social Security website and you can learn more about your own estimated benefit amounts by creating your account at www.ssa.gov.