He Was Stunned That His Wife Had Only $80,000 Saved Compared With His $2.2 Million. Social Security Could Still Cover Up to Half of His Full Benefit

Quick Read

• A spouse's Social Security benefit is capped at 50% of the worker's full retirement benefit, no matter how large his savings are or how long he waits to claim.

• If she claims at 62, her spousal benefit is permanently reduced to 32.5% of his full benefit; waiting until her full retirement age lets her receive the full half.

• His choice to wait until 70 would not increase her spousal payment, though it could boost the survivor benefit she may later receive, which can equal 100% of what he was actually collecting.

• Building a portfolio and living off it are very different skills, and most people are never taught the second one. This is the issue The Definitive Guide to Retirement Income addresses, and it is free today. (Sponsor)

A 64-year-old husband recently told MarketWatch that he was surprised to learn his 61-year-old wife has less than $80,000 in her 401(k), while his retirement and investment accounts total about $2.2 million. She worked part-time and helped raise their family.

That kind of gap is common when one spouse steps back from full-time work, and it can be misleading because her 401(k) reflects only part of the retirement income available to her. Social Security keeps separate records, and marriage to a higher earner can be worth more than her account balance suggests.

The key question is whether she should begin benefits at 62 while he delays until 70, allowing the couple to draw less from savings. Two Social Security rules are especially important:

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1. How much she can receive. Her spousal benefit is limited to 50% of his full retirement benefit, regardless of when he claims.

2. When she can receive it. He generally has to file before she can draw spousal benefits. If she starts her own benefit at 62, that early reduction stays with her even after she becomes eligible for a spousal top-up.

Half His Benefit Is Less Than Many Couples Expect

An eligible spouse can receive up to half of the worker's primary insurance amount, which is the monthly benefit he would get if he claimed at his normal retirement age. Only that figure matters. His 401(k), his net worth, and the larger check he gets by waiting until 70 do not change it.

For example, if his full retirement age benefit is $3,000 per month, she could receive up to $1,500 in spousal benefits. Even if he waits until 70 and gets a bigger monthly payment, her maximum remains $1,500. His delay does not raise her spousal benefit.

Her Claiming Age Is the Factor That Stays With Her

At 61, she generally cannot yet file for an age-based spousal benefit. The earliest she can begin is 62, and her husband usually must already have filed for his own retirement or disability benefit.

If her full retirement age is 67, claiming at the earliest possible age reduces her maximum spousal benefit to 32.5% of his primary insurance amount.

If her husband had already filed when she turned 62, that would mean $975 a month instead of $1,500. The $525 monthly difference adds up to $6,300 a year, and the early-claiming reduction remains with her.

Annual cost-of-living adjustments make the gap larger because each increase is applied to the smaller amount she locked in. The latest increase was 2.8%, and the next one is 3.6%. For most Medicare recipients, the standard Part B premium of $202.90 per month is also deducted from the benefit before it arrives.

The age difference helps in this case. Because she is three years younger, if he waits until 70 to claim, she will be 67 when spousal benefits become available. She can receive the full spousal amount if she has not already claimed her own retirement benefit early.

But if she starts her own retirement benefit at 62 while he waits until 70, that early reduction does not disappear once she becomes eligible for spousal benefits. She can receive a top-up after he files, but her own monthly payment stays lower for life.

Why Social Security Benefits Do Not Stack

If her part-time work gives her a retirement benefit of her own, Social Security pays that amount first. It then adds a spousal top-up only if half of his primary insurance amount is higher. For instance, if her own benefit at full retirement age is $800, and she waits until then to claim, she would receive $800 plus a $700 spousal top-up, for a total of $1,500. Claiming her own benefit earlier would change that result.

His Claiming Age Determines Her Survivor Benefit

When a couple plans together, whose name is on which account matters less than the household total. The $2.2 million can help cover living expenses while they wait for larger retirement benefits.

Those savings matter most for his claiming decision, because that choice determines what she would receive if he dies first. A surviving spouse can receive up to 100% of the late spouse's benefit after reaching the standard survivor-benefit age. That amount is based on the check he was actually receiving, including any boost from waiting. Delaying does not change her spousal benefit, but it can increase the widow's benefit she may rely on for the rest of her life. With a three-year age gap, she could depend on that check for many years.

What to Decide Before Either Spouse Files

Begin by reviewing both Social Security statements and comparing her own estimate with half of his primary insurance amount. That comparison shows whether her record or his will determine her benefit. It also shows whether her own part-time earnings add anything.

Then treat her claiming age as the decision that is hardest to reverse. Waiting until her full retirement age gets her the full half, while his timing can increase the survivor benefit she may someday need.

Birth dates, work histories and health can all affect the calculation, so it is worth running the numbers before either spouse files.

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