As of January 1, 2024, a significant change occurred in Social Security benefits for those who reached age 70. The long-standing spousal rule, which allowed married individuals to alternate between their benefits and spousal benefits to maximize their payments, has come to an end.
This rule, which benefited those born before January 1, 1954, was altered by the Bipartisan Budget Act of 2015, making it unavailable to younger beneficiaries. If you or your spouse were relying on these provisions, it’s time to reassess your Social Security strategy.
Here are three key things to consider for maximizing your Social Security spousal benefits moving forward.
Plan
Maximizing spousal benefits requires careful planning. Social Security offers either your personal retirement benefits or 50% of your spouse’s benefit, whichever is higher. To know your options, it’s a good idea to register for an online account with the Social Security Administration (SSA). This will help you calculate your benefits based on different claiming ages. Discussing your strategy as a couple is essential, as your benefits are interconnected.
By using the SSA’s online tools, you can estimate how delaying or advancing benefits will affect your monthly payout. According to Matthew Allen, CEO of Social Security Advisors, couples should start planning early to avoid missing out on maximizing their benefits.
Claims
While you can start receiving Social Security benefits at age 62, this will result in a permanent reduction. If you file before your full retirement age (FRA), which is currently 67 for most workers, your benefits could be reduced by as much as 30%. This reduction will also affect your spouse’s benefits.
For example, if your full retirement benefit is $2,000 at age 67, but you claim benefits at age 62, your monthly payout will be reduced to around $1,400. This reduction impacts the spousal benefit as well, which is typically 50% of the primary earner’s benefits. If your spouse claims early, they may also see their spousal benefit cut significantly.
For couples, this means that claiming early could permanently reduce not only your own retirement benefits but also the spousal benefits your partner might rely on.
Delaying
It’s commonly advised to delay claiming Social Security benefits until age 70 to receive the maximum payout. This strategy works for individuals, as delaying past the FRA increases your benefit by 8% per year, up to age 70. However, the same isn’t true for spousal benefits.
Spouses are only eligible for up to 50% of the primary earner’s benefit at FRA, and this amount does not increase if the primary beneficiary delays their benefits until age 70. Therefore, if your spouse waits until age 70 to claim, their benefit increases, but your spousal benefit remains capped at 50% of the FRA amount. Delaying Social Security benefits until 70 may not be the optimal strategy for couples, especially if spousal benefits are a significant part of your retirement income plan.
Tax-Friendly
If you’re looking to maximize your Social Security benefits, choosing a tax-friendly state for retirement can make a big difference. Here are three states that offer significant advantages for retirees:
| State | Sales Tax (State & Local) | Social Security Tax | Property Tax | Income Tax (65+) |
|---|---|---|---|---|
| Delaware | 0% | None | 0.61% | 2.2% to 6.6% |
| New Hampshire | 0% | None | 1.93% | 4% (on interest/dividends) |
| Wyoming | 5.36% | None | 0.56% | 0% |
Delaware
Delaware is a popular destination for retirees due to its lack of state and local sales taxes. However, it does have a graduated income tax, with rates ranging from 2.2% to 6.6% for those over 65. The state also boasts a relatively low property tax rate, making it a cost-effective option for retirees looking to reduce their tax burden.
New Hampshire
New Hampshire offers no state sales tax, no income tax on wages, and no Social Security tax. However, it does levy a 4% tax on interest and dividend income, which could affect retirees with substantial investment portfolios. New Hampshire’s only downside for retirees might be its high property taxes, which are among the highest in the U.S.
Wyoming
Wyoming is one of the most tax-friendly states for retirees. It has no state income tax, no Social Security tax, and relatively low property taxes. While the state does impose a modest sales tax, it remains an excellent choice for those looking to minimize taxes in retirement.
With the Social Security spousal rule no longer available to those born after January 1, 1954, couples must rethink their strategies to maximize benefits. By planning carefully, delaying claims only when it makes sense, and choosing tax-friendly retirement states, you can make the most of your Social Security benefits. Remember to review your options early and develop a strategy that works best for your financial situation.
FAQs
How much spousal benefit can I claim?
Spouses can claim up to 50% of the primary beneficiary’s FRA benefit.
What happens if I claim benefits before full retirement age?
Claiming early results in a permanent reduction of up to 30%.
Is delaying Social Security to 70 beneficial for spousal benefits?
No, spousal benefits are capped at 50% of the FRA benefit.
Which states are tax-friendly for retirees?
Delaware, New Hampshire, and Wyoming are highly tax-friendly.
Do spousal benefits increase if the primary earner delays until 70?
No, spousal benefits do not increase if the primary earner delays benefits.
