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Social Security is a critical source of income for millions of retirees in the United States. However, for married couples, navigating the system can get complicated, especially when it comes to spousal benefits. These benefits are designed to supplement the income of a lower-earning spouse based on the higher-earner's work history. However, a series of missteps can significantly reduce the amount you receive, potentially costing you thousands of dollars over your lifetime. Here are 14 crucial mistakes to avoid when filing for spousal benefits with Social Security:
Claiming Too Early
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You can claim spousal benefits as early as age 62, but just like your own retirement benefit, taking them early means a permanent reduction. A study by the Social Security Administration found that in 2022, claiming spousal benefits at 62 resulted in an average reduction of 30% compared to waiting until full retirement age (FRA). This can have a substantial impact on your long-term financial security.
Not Coordinating with Your Spouse
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Spousal benefits are intricately linked to your spouse's claiming decisions. If your spouse takes their retirement benefit early, it can affect the amount you receive as a spousal benefit, even if you wait until your FRA. Communication and strategic planning as a couple are essential to maximize benefits.
Failing to Consider Full Retirement Age
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Social Security's full retirement age (FRA) varies depending on your birth year, but it typically falls between 66 and 67. Spousal benefits are based on a percentage of your spouse's benefit at their FRA, not the potentially reduced amount they might receive if they claim earlier.
Missing Out on Delayed Retirement Credits
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For every month you delay claiming your retirement benefits past your FRA, you earn delayed retirement credits (DRCs) that increase your benefit by 8%. This also applies to your spouse's benefit. So, if your spouse waits until 70 to claim (assuming their FRA is 67), their benefit will be significantly higher, which in turn increases your potential spousal benefit.
Not Understanding the "Deemed Filing" Rule
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A hidden rule called "deemed filing" can trip up unsuspecting couples. If you claim your own retirement benefit before your FRA and your spouse is 62, they are automatically considered to be filing for a spousal benefit at that time, even if they haven't applied. This can lock them into a permanently reduced benefit.
Neglecting Your Own Earnings History
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Even if you qualify for a spousal benefit, it doesn't mean you should disregard your own earnings record. You might be eligible for a higher benefit based on your own work history. Social Security will automatically pay you the higher amount between your spousal benefit and your own retirement benefit.
Forgetting About Divorce
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Even after a divorce, you might still be eligible for spousal benefits if you were married for at least ten years, haven't remarried, and your ex-spouse is at least 62 and receiving retirement benefits. The benefit amount will be based on your ex-spouse's earnings record and your age at claim.
Overlooking Survivors Benefits
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If your spouse passes away, you might be entitled to survivor benefits, which can be higher than your spousal benefit. The amount depends on your age at your spouse's death and whether you have any dependent children.
Not Researching and Planning
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Social Security rules can be complex, and spousal benefits involve additional layers of considerations. Don't rely solely on hearsay or anecdotes. Utilize the wealth of resources available from the Social Security Administration (SSA) website, including online calculators and retirement planning tools.
Failing to Factor in Taxes
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While a significant portion of Social Security benefits are not taxed, depending on your total income, some of your benefits might be subject to federal income taxes. Understanding potential tax implications can help you plan for your overall retirement income needs.
Not Considering Cost-of-Living Adjustments (COLAs)
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Social Security benefits are adjusted annually for inflation through COLAs. This helps maintain purchasing power over time. When considering when to claim spousal benefits, factor in the potential impact of COLAs on the long-term value of your benefit.
Ignoring Health Care Considerations
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Medicare eligibility often hinges on your spouse's work history. If you rely on your spouse for health insurance coverage, understand how claiming benefits might affect your Medicare eligibility and potential costs.
Going it Alone
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Social Security offers a wealth of free resources and retirement planning tools. Additionally, consider consulting with a financial advisor specializing in Social Security benefits. Their expertise can help you navigate the complexities and create a personalized claiming strategy to maximize your benefits.
Ignoring the "File and Suspend" Strategy
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While no longer an option, it's worth noting a past strategy called "file and suspend" that some couples might be familiar with. This allowed a spouse to claim their retirement benefit at their FRA to earn DRCs while their spouse continued to receive a spousal benefit based on their unclaimed benefit amount. This maximized benefits for both partners, but unfortunately, this loophole was closed by Social Security in 2016.
