Oblivious Investor

Many people’s mental model of Social Security spousal/survivor benefits works like this:

1. Your spousal benefit is equal to half of your spouse’s retirement benefit.
2. Your survivor benefit is equal to the amount your spouse was receiving as a retirement benefit prior to his/her death.
3. If you file for a spousal benefit and a retirement benefit (or a survivor benefit and a retirement benefit), you get the greater of the two amounts.

Unfortunately, all three of those statements are wrong. They’re close enough, if you’re far from Social Security filing age and you just want a rough understanding of the system. But if you’re trying to do any planning with actual math, or if you’re trying to interact with the SSA, you need a more accurate understanding.

Let’s start with #3, because it is in my opinion the “wrongest.”

Here’s how it actually works: if you are entitled to (i.e., have already filed for) a retirement benefit of your own, and you then become eligible for (and file for) a spousal or survivor benefit, you continue to receive your own retirement benefit and you receive a spousal/survivor benefit in addition to that retirement benefit. If that sounds wrong or surprising to you, it’s because you have a misunderstanding about how spousal or survivor benefits are calculated.

How is a Spousal Benefit Calculated?

Your spousal benefit is initially calculated as half of your spouse’s primary insurance amount (PIA). A person’s primary insurance amount is the monthly retirement benefit they would get if they filed exactly at full retirement age.

Note that your spousal benefit is not half of your spouse’s monthly retirement benefit. It’s half of their PIA. If your spouse files for their own retirement benefit before or after their full retirement age, they would receive a retirement benefit that is more or less than their PIA. But your spousal benefit is still half of their PIA, not half of what they’re actually getting.

Then, after that initial calculation, your spousal benefit can be reduced for a whole bunch of different things.

Firstly, if you are also receiving your own retirement benefit, your spousal benefit gets reduced by the greater of your own retirement benefit or your own PIA.

Second, if you file for your spousal benefit before your full retirement age, your spousal benefit will be reduced for early filing.

And then that spousal benefit could also be reduced by various other rules (e.g., the government pension offset if you have a government pension, the family maximum rules if a child is also receiving benefits on your spouse’s work record, or the earnings test if you or your spouse are younger than full retirement age and still working).

Example: Sandra’s PIA is $2,000. Her husband Mark’s PIA is $600. Mark files for his retirement benefit four years prior to his full retirement age, so he gets a retirement benefit equal to 75% of his PIA, or $450. Later, after Mark reaches his FRA, he becomes entitled to a spousal benefit as well (because Sandra has filed for her own retirement benefit).

Mark’s spousal benefit is calculated as half of Sandra’s PIA, minus the greater of his own PIA or his own retirement benefit. That is, $1,000 – $600 = $400.

So his total monthly benefit is $450 + $400 = $850.

A few big takeaways here:

• He receives a retirement benefit and a spousal benefit.
• His retirement benefit is still reduced for having filed early.
• His spousal benefit is not half of Sandra’s retirement benefit.
• His total monthly benefit is $150 less than half of Sandra’s PIA. That’s because he’s still receiving his retirement benefit, and that retirement benefit is still reduced by $150 due to early filing.

If Mark’s spousal benefit had begun prior to his full retirement age, it would have to be multiplied by the applicable reduction factor for early entitlement. For example if his spousal benefit also began four years prior to his FRA, it would be multiplied by 70%. So it would be ($1,000 – $600) * 0.7 = $280.

How is a Survivor Benefit Calculated?

If your spouse had filed for his/her own retirement benefit by the time he/she died, then your survivor benefit is initially calculated as the greater of:

• The amount your deceased spouse was receiving at the time of his/her death, or
• 82.5% of your deceased spouse’s PIA.

If your spouse had not filed yet for his/her own retirement benefit by the time he/she died, then your survivor benefit is initially calculated as:

• Your deceased spouse’s PIA, if your spouse died prior to his/her full retirement age, or
• The amount he/she would have received as a retirement benefit if he/she had filed on his/her date of death, if your spouse died after reaching his/her full retirement age.

And from that point, some reductions can apply.

Firstly, if you are also entitled to your own retirement benefit, your survivor benefit is reduced by the amount of your own retirement benefit. (Note that this is different than with a spousal benefit, where it’s reduced by the greater of your own retirement benefit or your own PIA.)

Next, if your benefit as a surviving spouse begins prior to FRA, it has to be multiplied by an applicable reduction factor (details here).

And again, various other reductions might be applicable (e.g., government pension offset, earnings test, family maximum).

Why Does This Matter?

Things that reduce your benefit as a spouse or survivor (e.g., government pension offset, family maximum, or earnings test when it is your spouse who has excess earnings) do not reduce your own retirement benefit. So it’s important to know what portion of your total monthly benefit is a retirement benefit and what portion is a spousal/survivor benefit. If you think that you “get the greater of the two amounts” you would think that your whole benefit is a spousal/survivor benefit and the whole thing would be subject to reduction. But that’s not the case.

It’s also important when interacting with the SSA. SSA employees are tasked with implementing and explaining a very complex system of rules, so yes, mistakes do sometimes happen. But in the overwhelming majority of cases in which I hear that the SSA has provided incorrect information, it turns out that the SSA employee provided information that was precisely correct — though insufficiently explained — and that correct information collided with a preexisting misconception in the person’s mind (usually one of the three above), and the person ends up hearing something different than what the SSA employee actually said. It’s like a Who’s On First scenario, though not so funny when there are actual consequences.

You can easily imagine how something like that can happen. Just take Mark from our example above. He’s currently receiving a retirement benefit of $450. And, before Sandra files for her retirement benefit, he calls the SSA to ask for details about his spousal benefit. And imagine that Mark has previously heard that 1) a spousal benefit is equal to half of your spouse’s benefit and 2) you get a spousal benefit or your own retirement benefit. So he’s anticipating a spousal benefit of something like $800-$1,000.

SSA employee: Your spousal benefit will be $400 per month.
Mark: Wait, what? It’s only $400 per month? I thought it was going to be more than that.
SSA: No, I’m sorry. It’s $400 per month.
Mark (now worried that not only is his benefit not going to increase, but it might even decrease from $450 to $400): Well can I just choose not to file for it then?
SSA: No, you will automatically be deemed to have filed for your benefit as a spouse as soon as Sandra files for her retirement benefit.

Everything the SSA employee said was correct. But they didn’t catch on to the underlying misconceptions that Mark has. So now Mark is freaking out because he had been anticipating a benefit increase, and he thinks he has just been told that his benefit is about to go down and there’s nothing he can do about it. But in reality, he will be getting a benefit increase. He’ll keep getting his $450 retirement benefit, plus the $400 spousal benefit.

Many experienced SSA employees are well versed in these misconceptions, and they’re skilled at noticing when a miscommunication is occurring and then guiding the applicant toward a proper understanding. But that doesn’t always happen. It’s important to understand the rules for yourself.