Open Social Security

A reader writes in, asking:

“When I used the open social security calculator, the result showed my wife receiving both a retirement benefit and a spousal benefit. I thought it could only be one or the other?”

That’s a common misunderstanding. In reality, you can get spousal and retirement benefits at the same time — and it’s super common. In fact, it’s more common for a person to receive both than it is for a person to receive spousal benefits alone.

In short, once a person begins receiving their own retirement benefit, they will continue to receive that retirement benefit for the rest of their life, even after their benefit as a spouse begins.* And their spousal benefit — originally calculated as half of the other spouse’s primary insurance amount — will be reduced by the greater of their own PIA or their own retirement benefit. (See this article for more details of how a spousal benefit is calculated.)

The relevant material on the SSA’s site can be found here.

*There are some exceptions. For instance, a person’s retirement benefit will stop temporarily if they choose to suspend it. Alternatively, the earnings test could result in their retirement benefit being withheld if they are working while younger than full retirement age.

To understand Social Security benefit calculations, you first need to understand one piece of jargon: “primary insurance amount” (PIA). A person’s primary insurance amount is the amount of their monthly retirement benefit, if they file for that benefit exactly at their full retirement age.

A Social Security spousal benefit is calculated as 50% of the other spouse’s PIA. Note that the age at which the other spouse files for Social Security benefits doesn’t affect this calculation.

Example: Jane files for her retirement benefit at age 63 and is therefore receiving a retirement benefit that is smaller than her PIA. Jane’s husband Bob files for a benefit as Jane’s spouse. Bob’s spousal benefit will initially be calculated as 50% of Jane’s PIA. (Key point being: it’s 50% of Jane’s PIA, rather than 50% of what she’s actually receiving.)

If Jane had filed for retirement benefits after her full retirement age (and were therefore receiving an amount larger than her PIA), Bob’s benefit as Jane’s spouse would still be calculated as 50% of Jane’s PIA. Again, the age at which Jane files for retirement benefits does not affect the amount that Bob can receive as Jane’s spouse.

Complicating Factors: Spousal Benefit Reductions

An assortment of other factors can come into play, which could reduce your benefit as a spouse. For example:

• If you are receiving a retirement benefit of your own, your spousal benefit will be reduced.
• If you file for spousal benefits prior to your full retirement age, your spousal benefit will be reduced.
• If you are receiving a government pension from work that wasn’t covered by Social Security taxes, your spousal benefit will be reduced by the “government pension offset.”
• If your spouse is disabled or if you have a minor child or adult disabled child, the family maximum rules may result in your spousal benefit being reduced.
• If you are collecting a spousal benefit while under full retirement age and you are working, the earnings test may result in some or all of your spousal benefit being withheld.

We will discuss the GPO, family maximum rules, and earnings test in other articles. For now, we will discuss only the first two potential sources of reduction: entitlement to your own retirement benefit and filing prior to full retirement age.

Spousal Benefit Reduction Due to Own Retirement Benefit

If you are receiving a retirement benefit of your own, your benefit as a spouse will be reduced by the greater of:

1. your PIA or
2. your monthly retirement benefit.

Example: In addition to receiving a benefit as Jane’s spouse, Bob is also receiving a retirement benefit of his own. Because he is entitled to a retirement benefit of his own, he will not receive the full spousal benefit (i.e., 50% of Jane’s PIA). Instead, his spousal benefit will be reduced by the greater of a) his own PIA or b) his monthly retirement benefit.

Spousal Benefit Reduction Due to Early Entitlement

If you file for a spousal benefit prior to your full retirement age, that spousal benefit will be reduced due to early filing. The reduction is 25/36 of 1% for each month early, up to 36 months. For each month in excess of 36 months, the reduction is 5/12 of 1%.

Example (continued): Bob’s full retirement age is 67. Bob files for his retirement and spousal benefits at age 65 (i.e., 24 months early). As a result, his spousal benefit will be reduced by [24 x 25/36 of 1%] — or 16.67%.

The final calculation of Bob’s spousal benefit will be 83.33% x (50% of Jane’s PIA, minus Bob’s PIA). And to that, we would add Bob’s own retirement benefit to find the total amount of his monthly benefit.

A reader writes in, asking:

“My Social Security statement provides me with three different estimates of my retirement benefit (62, 67, 70). But each one includes an assumption that I actually work until the age in question. How could I find what my benefit would be if, for example, I work until 60 but then wait until 70 to start taking my retirement benefit?”

The SSA has a few tools on their website that can help answer this question. (The open-source “Social Security Tools” website is another good option.)

The SSA’s “AnyPIA” Detailed Calculator would do the job, but it has a steep learning curve and does not work for Macs.

So let’s instead use one of two simpler tools:

1. The “Online Calculator” (WEP version here, for people who will be receiving pensions from employment that was not covered by Social Security taxes), or
2. The Retirement Estimator, which does the same thing as the Online Calculator, but which pulls in your earnings history automatically (after you sign in) rather than having you manually enter your year-by-year earnings.

In either case, the calculator will ask you what year you plan to retire. Be sure to enter the year you plan to retire, not the year in which you plan to file for benefits (unless they happen to be the same year).

Then the calculator will tell you what your retirement benefit would be if you file as soon as you retire (or at age 62, if the age you enter as your planned retirement age is younger than 62).

From there we have to do a little bit of arithmetic. First we have to determine your primary insurance amount (i.e., your “PIA” which is the monthly amount of your retirement benefit if you file at exactly full retirement age) based on the benefit estimate the calculator has provided. Then we can figure out what your benefit will at any given filing age.

As we’ve discussed elsewhere, your retirement benefit is calculated as a percentage of your PIA, depending on the age at which you file.

• If you file for retirement benefits before your full retirement age, you get less than your PIA. Specifically, your benefit receives a reduction equal to your primary insurance amount times 5/9 of 1% for each month (up to 36 months) prior to full retirement age. This works out to a reduction of 6.67% per year. For each month in excess of 36 months, the reduction is 5/12 of 1% (or 5% per year).
• If you file for retirement benefits after your full retirement age, you get more than your PIA. Specifically, for each month you wait beyond FRA (up to age 70), you get one delayed retirement credit, which is worth 2/3 of 1% of your PIA. This works out to an increase of 8% per year.

So to find an estimate of your monthly retirement benefit, you’ll need to take the following steps:

1. Figure out the percentage of your PIA that the calculator thinks you are getting (because it’s assuming you file on your planned retirement date, or at age 62 if your planned retirement date is before age 62).
2. Divide your estimated retirement benefit by that percentage, to find your PIA.
3. Multiply your PIA as necessary based on your actual planned filing age to find your appropriately estimated benefit.

Example #1: Your full retirement age is 67. You enter your earnings history and you tell the calculator that you plan to retire at age 60. The calculator tells you that your retirement benefit at 62 would be $1,000.

We know that 62 is 5 years (60 months) prior to your full retirement age. The reduction for filing 60 months early is (5/9 of 1% x 36) + (5/12 of 1% x 24), which works out to a 30% reduction. So we know that the benefit that it’s quoting (for age 62) is 70% of your primary insurance amount.

So we divide $1,000 by 0.7 to get your PIA, which is $1,428.57.

And we can multiply that as necessary to find your retirement benefit at any given filing age. For example, your benefit at 70 would be 124% of your PIA, or $1,771.

Example #2: Your full retirement age is 66 and 6 months. You enter your earnings history and you tell the calculator that you plan to retire at age 68. The calculator tells you that your retirement benefit at 68 would be $1,500.

We know that 68 is 18 months beyond your full retirement age. The increase for waiting 18 months beyond FRA is 2/3 of 1% x 18, which works out to a 12% increase. So we know that the benefit that it’s quoting is 112% of your primary insurance amount.

So we divide $1,500 by 1.12 to get your PIA, which is $1,339.29.

And we can multiply as necessary to find your benefit at any giving filing age. For example, your benefit at 69 would be 120% of your PIA, or $1,607.