Retirement income for the elderly is typically comprised of what the National Institute of Retirement Security refers to as the ‘three-legged stool’ — a combination of defined contribution plans such as a 401(k), pensions, and Social Security benefits. With nearly 40% of men and women relying on Social Security for more than 50% of their retirement income, the government programme is critical in preventing many elderly Americans from falling into poverty.
In 1939, spousal and widow’s benefits were established to supplement the income of retired households. Spousal benefits enable individuals with brief or non-existent work histories to earn money based on their partner’s employment history. Spousal benefits became available to married same-sex couples and other couples in non-marital legal relationships in 2015.
Benefits for spouses, ex-spouses, and widows are especially beneficial to women, who spend more time away from work caring for children or elderly parents. According to the National Institute on Retirement Security, women account for 60% of caregivers.
Another study, conducted by the Social Science Research Network, discovered that women with one child earned 16% less in Social Security benefits than women without children, but spousal benefits helped to offset the difference in earnings.
“While the motherhood penalty is negligible for women receiving spousal benefits, mothers receiving benefits solely on the basis of their own earnings histories experience significantly lower Social Security income,” the study states.
Select spoke with Jim Blair, lead consultant at Premier Social Security Consulting, to learn more about the actual operation of spousal, ex-spouse, and widow’s benefits.
Benefits to the spouse
The Social Security Administration in the United States calculates a worker’s monthly benefits, referred to as the primary insurance amount, or PIA, based on their 35 highest-earning years. Individuals must have worked for at least ten years to qualify for worker’s compensation. In general, those who have worked steadily for a longer period of time earn more benefits than those who have experienced several years of unemployment or low wages.
Spouses can begin receiving spousal benefits at the age of 62 if the primary worker is already receiving them and the couple has been married for at least 12 months. Spousal benefits can be worth up to 50% of the primary worker’s benefit if the individual delays collecting them until reaching full retirement age.
Calculation of Social Security benefits based on various salaries
If an individual begins collecting benefits prior to attaining full retirement age, the amount of monthly spousal benefits is reduced. If a spouse is still under the full retirement age of 66, benefits can be reduced by up to 30%, Blair explains. If they begin collecting benefits before reaching full retirement age of 67, their benefits may be reduced by up to 35% if they begin collecting at the earliest available age, he says.
“How much of a reduction you will see is entirely dependent on your full retirement age,” Blair explains.
The average spousal benefit was only $838.88 in February 2022. Bear in mind that Social Security and spousal benefits are intended to supplement an individual’s retirement income; therefore, it is critical to accumulate personal retirement savings in addition to these benefits.
Apart from contributing to your employer-sponsored 401(k), you may wish to open a traditional or Roth IRA. With a traditional IRA, you will not be taxed on your investments until you begin receiving distributions at retirement. On the other hand, a Roth IRA is an after-tax retirement account that allows individuals to defer paying taxes on their initial contributions in order for their investments to grow tax-free over time.