9. “Half your spouse’s retirement” is the common description of a spousal benefit, but many spouses don’t get that much and are disappointed.

Spousal benefits are based on the primary insurance amount (PIA), which is the retirement benefit payable at FRA. If one delays their retirement benefits until age 70, the spousal benefit does not increase above half the PIA.  Say a 66-year-old woman’s PIA is $1,000, but she waits until 70 to collect $1,320. Her spouse’s spousal benefit is half the PIA ($500), not half of $1,320. These amounts ignore any inflation adjustments.

If a client is not full retirement age and her spouse is receiving benefits, she cannot elect to receive a spousal benefit or her retirement benefit. Automatically, she will be deemed to have started her retirement early and receive a supplement (also reduced for starting early) if the total will be higher. The supplement will be less than half her spouse’s retirement benefit.

10. The retirement benefit collection status of a client's spouse in the month she files for early retirement benefits is critical. If the spouse has not filed when she files, she can get just her reduced retirement benefits, and at her FRA she can add a full supplement. As mentioned above, this still won’t be 50 percent, but it will be more. This trips up a few couples who file in the same month and in which one or both are filing early. 

11. While a client can’t get a spousal benefit off her spouse’s record until the spouse collects or files and suspends his retirement benefits, she can get a spousal benefit from an ex-spouse, even if he hasn’t filed. The client must have been married for at least 10 years, divorced for two years, not currently married, be at or past FRA, and her ex-spouse must be 62 or older. Under these circumstances, she can delay benefits based on her earnings record and earn delayed credits.

If your client applies before her FRA, she will be deemed to have started her retirement early.

12. A client who works in her sixties can increase her retirement and other benefits, but working and collecting retirement benefits prior to her FRA means benefits are subject to the earnings test and can be reduced.

13. If a client starts retirement, spousal or widow/widower benefits before her FRA and experiences a reduction due to the earnings test, all is not lost, at least for retirement benefits. Her retirement benefits will increase at her FRA based on the number of months of benefits she forfeited. It is called the “adjustment to reduction factor.” Spousal or child benefits lost to the earnings test are lost. The adjustment to the reduction factor does not apply to those benefits.

14. The above adjustment doesn’t mean starting early doesn’t matter. The client may get paid back, but her retirement benefit is the reduced amount and other benefits like spousal and widow/widower benefits key off that number.

15. Another issue with the reductions from the earnings test comes if a client is collecting a spousal benefit prior to her FRA and her spouse is collecting his retirement benefit before his FRA. If her spouse’s retirement benefit is reduced because of his earnings, the client's spousal benefit can be reduced, too, even if she doesn't work. If she does work and earns enough, even more reductions are possible.