Jennifer: I have a client who was divorced last year and started collecting her own Social Security benefit of $250 per month in January when she turned 63. Her husband is four years younger. She plans to file for spousal benefits in the future. Will collecting now affect her future benefits?
MBF: Yes. By claiming her Social Security early, her benefits will be permanently reduced. But her benefit is so small it won’t make a huge difference. Assuming she was born in 1957, her full retirement age is 66 and 6 months. By claiming at 62, her benefits were reduced by 27.5% compared to her FRA amount of about $320 per month.
Her age at the time of claim determines how much she will receive, with spousal benefits worth the most if claimed at her FRA. Eligibility for spousal benefits begins once her ex-husband turns 62 and they’ve been divorced at least two years. At that point, she can step up to a larger benefit, but it would be worth less than half of his FRA amount.
Let’s say her ex-husband’s FRA is $2,400 per month. Her maximum spousal benefit is half of that -- $1,200 per month -- if she claimed at 66 and 6 months. The “excess spousal amount,” which is the difference between half his FRA ($1,200) and her FRA ($320), is $880 per month.
If she first claimed at 66 and 6 months, she would receive the full spousal benefit of $1,200 per month, comprising her own FRA amount of $320 and the excess spousal amount of $880.
Because she claimed her own benefit early at 62, she would step up to a spousal benefit of about $1,113 per month once her husband is eligible for benefits at 62 — her own reduced benefit of $250 plus the excess spousal amount of $880, assuming she was at least FRA at the time; less if she were younger.
The difference is only about $1,044 per year. If she doesn’t need the money now, she can withdraw her application within 12 months of first claiming and repay any benefits she has received. Then, when she claims in the future, her benefit will be based on her new claiming age.
Mary Beth Franklin, a certified financial planner, is a contributing editor for InvestmentNews.
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