2024 Marks the End of Social Security’s Spousal Rule—3 Ways to Stay Ahead

The face of Social Security is changing, and it’s time to pay attention. Gone are the days when most women relied on their husbands’ earnings for retirement benefits. By 2025, nearly 60% of women over 60 will cash checks based solely on their own work history ¹, according to the Social Security Administration’s crystal ball.

But here’s the kicker: a popular strategy for maximizing spousal benefits just bit the dust in 2024. Unless you hit the big 7-0 on New Year’s Day, you’ve missed the boat on this golden opportunity.

Don’t panic yet, though. While the rules have changed, there’s still plenty of room to play the Social Security game smart. With retirement on the horizon for millions of couples, understanding these shifts could mean the difference between sipping margaritas on the beach or pinching pennies at home.

So, what’s a savvy soon-to-be retiree to do?

Understanding the Expired Rule

Under the old rule, the higher-earning spouse could claim spousal benefits at their full retirement age while the other spouse claimed their own benefit. Then, the higher earner would switch to their own benefits at age 70, maximizing their monthly payment thanks to delayed retirement credits.

Meanwhile, the lower-earning spouse could choose between their own benefit or the spousal benefit, whichever was higher.

This “file and suspend” strategy gave rise to a popular couples’ claiming method. The higher earner would file for benefits at full retirement age but immediately suspend them, allowing the lower earner to claim spousal benefits while the higher earner’s own benefits continued to grow until age 70.

Congress ended this option in 2015 but grandfathered in those close to retirement age born before January 2, 1954.(ref)

This strategy allowed couples to optimize their Social Security income. But now that it’s ending, it’s crucial to understand your options and plan accordingly.

Alternative Strategy #1: Plan Ahead Together

Just because the spousal rule is going away doesn’t mean you can’t maximize your benefits as a couple. The key is to discuss and plan out who should claim benefits and when.

Remember, Social Security always pays the higher of the individual’s benefits or spousal benefits to the lower earner. By creating an online account with the Social Security Administration, you and your spouse can review your estimated benefits at various claiming ages. This will help you make an informed decision about the best claiming strategy for your situation.

Have an open conversation with your spouse about your retirement goals and run the numbers together to optimize your household’s Social Security income.

Alternative Strategy #2: Avoid Claiming Too Early

While you can start claiming Social Security benefits as early as age 62, doing so comes with a significant penalty. Your benefits could be permanently reduced by up to 30%. For example, if your full retirement benefit is $2,000 per month at age 67, claiming at 62 would drop that to just $1,400.

Since a spouse’s benefit is directly tied to the primary beneficiary’s payout, claiming early can also permanently reduce your spousal benefit. If possible, try to wait until at least your full retirement age to start claiming.

For those born in 1960 or later, the full retirement age is 67. Earlier birth years have a lower full retirement age.(ref)

Alternative Strategy #3: Don’t Necessarily Wait Until 70, Either

On the flip side, waiting until age 70 to claim benefits isn’t always the best move for spouses. While delaying benefits past your full retirement age does result in a higher monthly payment for the primary beneficiary, spousal benefits are capped at 50% of the primary’s full retirement benefit.

In other words, even if your spouse waits until 70 to claim, your maximum spousal benefit will still be based on their full retirement age amount, not the higher delayed amount. So there’s less incentive for spouses to wait beyond full retirement age to start benefits.

One option is for the lower-earning spouse to claim reduced benefits as early as 62. This brings some cash flow into the household while allowing the higher earner to delay their own benefits until age 70.

The lower earner’s reduced retirement benefits will have no impact on their survivor benefits if they are widowed after reaching full retirement age.

The Silver Lining: Unexpected Benefits of the New Social Security Landscape

Think the end of “file and suspend” is all doom and gloom? Not so fast. Here’s the upside of the new rules:

• Simplicity reigns supreme. No more complex claiming strategies that require a financial degree. Now, it’s all about making straightforward decisions based on your unique situation.
• A more level playing field. The old rules often favored those with financial savvy. Now, we’re back to the program’s roots: providing a safety net for all retirees.
• Work incentives get a boost. With spousal benefit “freebies” off the table, there’s more reason to stay in the workforce longer. The potential payoff? Higher Social Security checks and a more robust nest egg.
• Planning for longevity. As lifespans increase, these rules encourage strategies that provide more income in later years – a potential lifesaver for those at risk of outliving their savings.
• Sparking crucial conversations. These changes are prompting couples to discuss retirement plans earlier, fostering important financial dialogues.

While we’ve lost one tool in the Social Security toolkit, we’ve gained a clearer path forward. The key now? Understanding your options and crafting a strategy that aligns with your retirement vision.

The Bottom Line

The expiration of this Social Security spousal rule may be disappointing for some couples, but it doesn’t mean you’re out of options.

By planning ahead, avoiding claiming benefits too early, and understanding the nuances of spousal and survivor benefits, you can still optimize your Social Security income in retirement.

Remember, everyone’s situation is unique. It’s always a good idea to consult with a financial advisor who specializes in Social Security planning to help you make the best decisions for your specific needs and goals.

With some careful strategizing, you can still make the most of this valuable retirement resource.

Source:

1. Social Security Administration