TRANSCRIPT
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Episode #24 - Understanding Spousal (and Ex-Spousal) Social Security Benefits
Eric Blake: Welcome to another episode of the Simply Retirement Podcast. I am your host, Eric Blake. On this show, we provide retirement education and support for women throughout the retirement journey. Today I'm going to be joined by my amazing producer, Wendy McConnell, as we discuss what women need to know about spousal and ex-spousal social security benefits. So Wendy, how are you today?
Wendy McConnell: Oh, I'm good. You flatter me.
Eric Blake: Hey, you keep the train on the tracks, that's for sure.
Wendy McConnell: Well, glad to help, and glad to help in any way that I can. And I'm a woman, so I may have questions. So this is good.
Eric Blake: I think this is perfect. That's why I love having these conversations with you because it gives me a chance to get the information out there, but also where maybe there needs to be some clarification or whatever it might be that you're able to, again, keep the train on the track. We're all good with that.
But I wanted to share, one of the things I wanted to do very first is just kind share what inspired this particular episode because one of the things that happens when you focus your practice primarily on working with women, there's a huge responsibility, and I take that very seriously. And that's probably not a very surprising statement, I would guess. But the other thing that happens, when you work with women that have gone through maybe a divorce or they've been widowed, it can sometimes take a while to truly establish a level of trust and confidence that they will have in you to provide the right guidance, right advice, because in many cases it's the first time they've really been responsible for their own financial situation. But once you've gotten to that point where you've established that trust, one of the interesting things that also happens is that women want you to talk to their friends and their family and provide guidance and advice for them.
As I've told our clients, if you ever have a friend or a family member that has money questions, please don't ever hesitate to send them my way. I'm always happy to chat, answer their questions, whether they become a client or not, it doesn't really matter. And some of the stories I hear, honestly, they're heartbreaking. And that's what happened recently. I had a phone call scheduled with a friend of another client, and it's a very frequent story unfortunately. She actually put in the notes in the call that this was her first time being responsible for her own financial situation after an extremely, it's been an emotionally damaging marriage, she just got out of the marriage, she just got divorced. She wasn't even allowed to be a part of the financial decisions. And as I'm preparing for the introductory phone call, I immediately see a red flag because she also put it in the notes that she's been working, now that she's gotten out, the divorce is final, she's been working for about 30 hours a week. And more importantly, she noted that she had just started ex-spousal benefits after just turning 62.
And I'm thinking, uh-oh, we might have a problem here. Does she know, does she understand, the earnings test? Meaning, that you can only earn a certain amount before your benefits actually start getting reduced. Whether they're actually going to take your benefits away, some portion of your benefits away, they could actually take the entire benefit away if you earn too much. And I'm thinking, okay, that needs to be part of this conversation. And in fact, after we got on the phone call, I started asking her some questions just to make sure I knew the full story. And yes, or no, she was not aware that she might actually have to pay a chunk of that money back from social security because she's making more than what the earnings test is. And those are the types of-
Wendy McConnell: And this is because of her age?
Eric Blake: Not because of her age. Well, yes, so technically because of her age. And I'm going to go through all the different key things to be aware of, but if you start receiving social security before full retirement age, you are limited in how much you can earn before your benefits actually start getting reduced. Where they may actually have you write a check to them back saying, "Hey, you earned too much. You need to write us a check for 5,000 or 10,000." It could be the entire amount. If you earn a certain amount and say you're 62 or 63, if you earn too much, you might have to pay your entire social security benefit back for that year.
Wendy McConnell: So what you're saying is, she's already taking benefits and she started working, okay.
Eric Blake: She's already taking benefits. She started receiving her ex-spousal benefits, and because why wouldn't you? She needs the money, she's working. She wanted to, that was a part of it too. She wanted to work, she wanted to have control over her own financial situation. So okay, I'll take my ex-spousal benefits, I'll start working, have some income coming in, not even thinking about, hey, well I can only earn so much before I've got a problem. And she was not aware of that.
Wendy McConnell: No, okay.
Eric Blake: And so that's really what inspired me to go ahead and try to get this episode out there because I think social security itself is still, it's the most common retirement income source, but it's still one of the most misunderstood. So I'm like, okay, we got to got to do something about this. Let's get some of this content out there, see what we can do to help people out and make better decisions about their social security strategy.
Wendy McConnell: And we want to do this obviously before we retire and start receiving benefits and all of this stuff. So we'll get into this, what you need to know.
Eric Blake: What women need to know about spousal and ex-spousal social security benefits.
Wendy McConnell: Okay.
Eric Blake: First thing I wanted to start off with is, just simply the benefit calculation. Now, also, you have to keep in mind, when we're talking spousal and ex-spousal benefits, that means your spouse or your ex-spouse is still alive, number one. So do not confuse this with survivor benefits, they're two completely different social security benefits. Spousal, ex-spousal benefits is completely different than survivor benefits. So that's number one. The other thing is, you always have to remember that the maximum benefit you can receive for spousal and ex-spousal benefits is 50% of the higher-earning spouse of what their full retirement age benefit is. So that's step one. That's the maximum you can receive, 50% of their full retirement age benefit, whatever that might be.
It's going to get reduced. And I'm going to go into the details of this here in just a little bit, but it's reduced if you start earlier. So if you start before your own full retirement age, it's going to be reduced from that 50%. And I'll give you some of the numbers on that when we get to that in just a little bit. But those are the two key things right off the bat; maximum 50% of the full retirement age benefit of the other spouse, it gets reduced if you start early.
Wendy McConnell: Okay, that makes sense because that's the case with most social security benefits.
Eric Blake: It's the case with most social security benefits. Start early, it gets reduced, wait until full retirement age, that's the maximum you're going to get for spousal or ex-spousal benefits. So one of the things always stumped me, I came up with, basically three questions you want to start with asking yourself when you figure out what is your calculation potential going to be. The first question is, you want to find out, am I eligible for a social security benefit based on my own record? If you've got at least 10 years of work history, you are eligible for a social security retirement benefit on your own without worrying about spousal or ex-spousal. So you want to go to ssa.gov and download your earnings statement, find out what your current projected benefit is, find out if you're eligible. That's going to be the first question. Am I eligible for my own benefit?
Second question is, if I'm eligible for a benefit on my own, is 100% of my own benefit greater than or less than 50% of my spouse or my ex-spousal's benefit? That's question two. And then lastly, if you have no work history or maybe you have a limited work history where you don't qualify for your own benefit, are you eligible, are you actually eligible, for a spousal or ex-spousal benefit based on a current marriage or a previous marriage? And I'm going to talk about those specific qualifications next.
Wendy McConnell: Okay.
Eric Blake: All that makes sense?
Wendy McConnell: That's what I'm wondering, Eric. [inaudible 00:08:58].
Eric Blake: Awesome. Well, let's do it. Let's do it. Eligibility. Let's talk about eligibility. First I'm going to talk about eligibility for a spousal benefit, meaning you are currently married to your spouse. So when you look at qualifications for spousal benefits. Number one, you have to be married for at least one year. You have to have been married for at least a year before you are eligible for a spousal benefit. Second thing is, you have to be at least 62 years old. Now, we talk about the fact that you could get a reduced benefit at 62, but just to be completely clear, you have to be at least 62 before you can actually file for spousal benefits.
Number three, and this is really a key, the higher earning spouse must have applied for their own benefit before you can apply for a spousal benefit. So you can't just do it because you want to. And that's actually a change to the rules that happened in 2015. I won't go into all the details of that. But just know that the rules currently say that you cannot file for a spousal benefit unless your spouse has actually filed for their benefit first.
Wendy McConnell: So the woman that you referenced in the beginning, if her husband had not yet retired, she would not have been able to get ex-spousal benefits?
Eric Blake: Again, that's different. I'm going to go through... There's different criteria for ex-spouse. This is not confusing at all, is it?
Wendy McConnell: I don't know why people think it's confusing, Eric.
Eric Blake: Why do people make mistakes? Who knows? It's so straightforward.
Wendy McConnell: All right, so we'll put that to the side for now and you continue.
Eric Blake: So married at least one year, at least 62, and the higher earning spouse must have filed for their own benefit before you're eligible to file for spousal benefits.
Wendy McConnell: Got it.
Eric Blake: That's married. Divorced, let's tackle that one now, talk through that a little bit. To file for an ex-spouse benefit, the marriage has to have lasted at least 10 years. So you're married for 10 years, 12 years, 20 years, whatever it was, as long as it was at least 10 years. That is what the first criteria is for being eligible for an ex-spouse benefit. Secondly, you again must be at least 62. So again, you file at 62, it's going to get reduced, but that's as early as you can file. Here's the key, this gets to your question. If a divorce happens at least two years ago, meaning the divorce is final and done at least two years ago, the ex-spouse does not have to apply for their own benefit, if that's the case. They only have to be at least 62. So the ex-spouse also has to be at least 62. You have to be 62. But as long as the marriage ended at least two years ago, you could still choose to file for an ex-spouse benefit whether the other spouse has filed or not.
Wendy McConnell: So if my divorce became final in January of 2022, I am now eligible?
Eric Blake: Yes.
Wendy McConnell: Okay. Got it.
Eric Blake: Exactly. You could file, as long as the ex is at least 62 years old.
Wendy McConnell: Right, okay, understood.
Eric Blake: That one actually does make a little sense because they don't want to tie ex-spouses together from a benefit standpoint or a retirement income standpoint. It's not fair for... We've heard all these horror stories about what ex-spouses might do to the other one, and that's one that they've basically avoided is, you don't have to worry about what the other ex-spouse has done for you to choose what you want to do, if that makes sense.
Wendy McConnell: So let me ask you this, if somebody gets divorced after say 15 years. And then the spouse, the man, gets remarried and then is married to that woman for 20 years, what happens then with the benefits?
Eric Blake: That's a great question. And again, when you think about when they first came out with social security, they probably weren't thinking about some of these issues. Most marriages lasted forever. So to answer your question, you could actually have multiple ex-spouses all be eligible for an ex-spouse benefit off the same guy, as long as each of those marriages lasted at least 10 years.
Wendy McConnell: So it's not 50% of his benefits, it's just that she gets the benefit of 50% and he's still getting a hundred percent?
Eric Blake: Yes. So the ex-spouse benefits do not impact the primary earner or the higher earning spouse's benefit at all.
Wendy McConnell: Okay, that makes more sense. Gotcha.
Eric Blake: So again, back to you to completely answer your question, if the divorce happened 15, your divorce was more than two years ago, it lasted 15 years, you're eligible for ex-spouse benefits and now he has remarried, and that marriage lasted 10 years, 15 years, 20 years, say he's still married. It also doesn't impact the current spouse's benefit. So there's no limitations.
Wendy McConnell: That's actually some good news. I actually like that.
Eric Blake: Right. Well, and that's the thing. And that's again, you would never thought about the scenario where the same person was married to three or four different people for at least 10 years. But it happens. There's stories out there. I personally know a couple of them, where again... So if the guy was married to three or four different women over his lifetime and they were all at least 10 years, all three or four women could be eligible for ex-spouse benefits off that same guy.
Wendy McConnell: So if you're the first wife, it really doesn't concern you if he marries five more times.
Eric Blake: Nope. The only thing you got to know is, make sure to jot down his age or his birthday so you don't forget. Make sure when he turns 62. So if you need to know then you're good to go. But other than that, you don't have to really worry about it.
Wendy McConnell: Perfect.
Eric Blake: All right. So let's talk about now some of the... Let's see, did I make sure I covered everything? Oh, yep, because I think that may also have been where you're going. You're no longer eligible if you get remarried. So if you are currently married, you got divorced and you've remarried, you are no longer eligible for an ex-spouse benefit off that ex-spouse's work record.
Wendy McConnell: Okay, that makes sense.
Eric Blake: Now you might have to go back up to the married criteria and you may be eligible off the current spouse, but if you're currently married, you're no longer eligible for any ex-spouse benefits off of a previous marriage.
Wendy McConnell: So if you get married, basically that first year is like a waiting period where you may be left out in the dust here.
Eric Blake: Yeah. And that's where again, potentially, depending on the circumstances where survivor benefits may kick in, if it's, again, not to muddy the waters too much, but then you go, okay, if I were married for nine months and my husband passed away, that's a whole different scenario. That's where survivor benefits might kick in. But spousal benefits, you must be married at least a year.
Wendy McConnell: Okay, gotcha.
Eric Blake: All right. So let's move on to some of the timing and filing strategies that I think you need to be aware of. And the first one is, to get that 50%, the highest maximum spousal or ex-spousal benefit, to maximize that 50%, you must file at your full retirement age. And that's going to be, if you were born in 1960 or later, that's going to be 67. If you were born before 1960, it's going to be 66 and some amount of months. So 66 and two months, four months, six months, depending on again, your actual year of birth. And that's, again, where you would want to go if you don't know what it is, and I'm going to share some resources as part of the episode summary, but you can easily go to the SSA website, the social security website and find out what your full retirement age is if you don't know it. And again, based on your year of birth, you want to know what your full retirement age is and that's going to be one of our to-do items at the end.
Wendy McConnell: Okay.
Eric Blake: Next thing is, if you apply before full retirement age, before that, whatever it is, if it's 66, 66 and six months, 67, whatever your full retirement age is, if you retire before that, it's going to be reduced from that 50%. Now the maximum, now again, the earlier you apply, the more the reduction's going to be. But let's say for example at 62, which is the earliest you could apply, at that point, your benefit could be as little as 32.5% of that higher earning spouse. So the earliest you can retire is 62, you're going to get about 32.5% of that ex-spouse's benefit or spouse's benefit up to a maximum of 50% if you wait until your full retirement age.
Wendy McConnell: Got it.
Eric Blake: All right. Now, here's a little bit of a strategy that a lot of people aren't aware of. And that's if you do happen to qualify for your own benefit, you've worked enough years, you worked at least 10 years, depending on the circumstances, it may make sense for, especially if it's a cashflow issue or some reason why you say, "Hey, we actually need the income." You can actually turn on your income. Let's say you turn on your own income at 63 and let's say it's $700, and your spouse's benefit is 2,000, but they haven't filed yet. Remember that rule. So the spouse has to have filed. So I start my own benefit, I'm receiving $700 a month, and I wait, and then at 67 my spouse files for their $2,000 benefit. You are then able to get a top-off, what they call a spousal top-off, where your benefit's actually going to jump from 700 to potentially a thousand.
But if you're in a cashflow, maybe it's a cash flow need, or something's come up where maybe that's the only income source you have, that is a strategy to think about is, I file for my own benefits early, wait until my spouse files for his benefits, and then I get that spousal bump, if you want to call it that.
Wendy McConnell: Okay, I like that too.
Eric Blake: Okay. Now, here's a little bit of a tricky one. Delayed credits do not count for spousal or ex-spousal benefits. Let's talk about what delayed credits are. So if you qualify for your own benefit, and let's use the spouse in this example to hopefully make it a little bit easier, but let's say your spouse, their benefit if they file a full retirement age is $2,000, but if they wait till age 70, they get delayed credits, meaning their benefit increases over that three-year period, from 67 to 70. So potentially, that $2,000 benefit becomes $2,480 when they turn 70, they start their benefit. That extra credit, those delayed credits, do not count towards spousal or ex-spousal benefits.
Wendy McConnell: Oh, okay.
Eric Blake: So, you're still only going to be eligible for a maximum of $1,000, 50% of that original $2,000 benefit.
Wendy McConnell: Regardless of whether they were [inaudible 00:19:11] or not.
Eric Blake: Regardless. So delaying past full retirement age for spousal or ex-spousal benefits doesn't make sense.
Wendy McConnell: Yeah, you're right. It really doesn't.
Eric Blake: Now again, keeping in mind, again, we got to keep clarifying the married versus divorced situation, because again, if you're married and your spouse waits till 70, then again you can't file until they've actually filed. So you got to keep that in mind. But as far as the actual benefit, it will not ever be more than 50% of your spouse's full retirement age benefit.
Wendy McConnell: Got it. I think I follow that.
Eric Blake: All right, now here's a big one also that I think is really important to know, and that is, there's so many situations, especially with our clients where, again, it's a divorce situation, it's a widowed situation, where if your spouse or your ex-spouse files early. In many cases, men, whatever various reasons that we won't have to get into in this conversation just yet, they decide they need to file for social security benefits early for some reason. Sometimes they don't even talk to their wife about it. But if they file early before the full retirement age, if they file before their own full retirement age, let's say they file 63, 64, the benefit, you can still get up to 50% of their full retirement age benefits as long as you wait until your own full retirement age.
Wendy McConnell: So you [inaudible 00:20:28] take it early, but then you will get the full benefit that you are entitled to when you are of retirement age.
Eric Blake: Right. So let's say we got Bob and Sue, that's generic names here. So Bob's benefit, his full retirement age benefit is $2,000, but he, for whatever reason, decides he's going to start early and now he's receiving 1,500. Well, Sue says, "Hey, well that doesn't really make sense to me. I want to maximize what my spousal benefit is. I'm going to go ahead and still wait until my full retirement age." She can still get 50% of the 2,000. It's not limited to 50% of the 1,500. As long as she waits until full retirement age. So again, it's a way of not penalizing you because your spouse made their own decision, or the ex-spouse for that matter.
Wendy McConnell: Yes, got it.
Eric Blake: Makes sense so far?
Wendy McConnell: It does.
Eric Blake: Hopefully getting a little of the mud out of the water here. Now, this is where again, I talked about one of the reasons I wanted to do this episode, and this gets to employment considerations because again, you think, especially these days where cashflow is such a challenge with inflation and things like that, you think about, well, hey, I'm running short on cash, let's apply for social security. But again, not always being aware of the implications when it comes to working and receiving social security benefits at the same time.
So let's chat through that a little bit. So working before full retirement age, you are subject to an earnings test, and I touched on that at the very beginning, but for 2024, for example, the earnings test, the limit is $22,320. So if you earn more than that, for every $2 you earn above that, your benefit is going to get reduced by $1. And that's what she was dealing with. Again, whether it's ex-spouse or spouse, it's the same rules. If you're working and receiving a social security benefit, if you earn more than $22,320, for every $2 you earn above that, $1 is going to get reduced.
Wendy McConnell: Again, I don't know why people think this is confusing. I follow you, but it's so...
Eric Blake: And why would you even think about... Especially, again, under the circumstance of, "Hey, I'm on my own, I'm doing things, I'm making my own decisions."
Wendy McConnell: Yeah, it's crazy. But yeah, you're making it make sense, which is a good thing.
Eric Blake: Again, so that's working before your full retirement age. Now, let's throw another variable in there. What happens when you're within one full year of your full retirement age? Let's say your full retirement age is 67, but now you're 66, there's still an earnings test, but it jumps pretty substantially. So if you are one full year from your own full retirement age, you're 66 or greater, if your full retirement age is 67, that earnings test number jumps to $59,520. So as long as you're earning less than that, there's no benefit reduction. If you earn more than that, for every $3 you earn above that amount, you still lose $1 benefits. But you have to, again, be above the 59,520.
Wendy McConnell: So they're okay with us making money at our retirement age, or around our retirement age, but they don't want us taking benefits if we're still able to bring in a decent amount of money.
Eric Blake: And today, the social security system was not designed for what it's being used for today. That's really the bottom line to a lot of this stuff is, your intention was to provide a benefit for those that can no longer work for whatever reason. And we're going back to 1935. So you think about the age of the life expectancy, at that point, you took benefits at 65, you passed away when you're 67. Now you take benefits at 65 or 67, you live until you're 95 or 97. So that's a big factor. And again, that's where the earnings test comes in, is for that reason. It's to disincentivize people from taking benefits and working, for basically kind of doubling up. That's really where this comes from.
Wendy McConnell: I get it, okay.
Eric Blake: So then what happens once you actually get to your full retirement age? Once you get to full retirement age, there is no earnings test. You can earn as much as you choose or however much you need to or however much you want to, at that point, once you've reached full retirement age. So if your full retirement age is 67 and you're still working, you can start benefits and work as much as you choose to or need to or want to or whatever the case might be, with no impact on your benefits. So again, we're not even going to get into the tax implications here.
Wendy McConnell: I was going to say, [inaudible 00:25:06] taxes.
Eric Blake: Let's not think about that. So taxes is an issue and that's where we come in of helping people understand that. I'm going to touch on it just a little bit in the next section we do here. But as far as just understanding the earnings test, the earnings implications, if you're working and receiving social security benefits, what do you need to be aware of? Now, what I tell people all the time is this does not mean you shouldn't work if you need to or if you want to. Yes, it's a benefit reduction in the year of earnings, in that particular year. But the other thing that also is important to clarify is you don't lose those benefits. They're not gone. They don't just disappear, they don't give them to somebody else. Those benefits are still yours. What happens is if you happen to earn too much, you earn above that earnings test and they take some of your benefits back in that current year, they get pushed forward into your full retirement age. Whatever age that might be. And then it gets recalculated into your benefit at that point. So that's a huge factor.
Wendy McConnell: So it would be higher.
Eric Blake: Yeah. I'm not going to say it's going to be... If you lose 5,000 in a year, they're not going to bump your benefit up by $5,000 when you turn full retirement age. It's going to get recalculated into that. It's going to be something much less than that, but you are going to receive those benefits. So again, that's one of those confusing things that people think, well, if I had to give it back, that's gone. It's gone forever. Not completely true. You still get it. It just gets pushed back to your full retirement age and recalculated into your benefit at that point.
Wendy McConnell: Got it. Okay, so what's next?
Eric Blake: The other thing, I would throw one more thing in here, as far as employment goes, and that's again, if you want to or need to work, even if you happen to be receiving social security benefits and you're working, you could actually still be increasing your benefit. Let's say you had, if you go, let's quickly go through the criteria for calculating your social security benefit. It's based on the highest 35 years of your earnings. So maybe, I talked about, you have to have at least 10 years to qualify, but if you only have 10 years, that means you've got 25 years of zeros that are getting included in your calculation. Well, yes, maybe I'm receiving benefits, but if I'm still working, I'm at an 11th year or 12th year or 13th year or 14th year, that's going to positively impact your benefit down the road. So again, do not use social security as a reason of not working, especially if you need to. Now, if you want to, maybe there's some other considerations you need to take into account, but if you need to work, work, and then make the adjustments as you go.
Wendy McConnell: So what are some of the other considerations we should keep in mind, overall?
Eric Blake: And some of these we've touched on as we've gone through it. But the first one is looking at, again, spousal and ex-spousal benefits do not impact that other spouse's, the higher earning spouse's, benefit. So you don't have to worry about, well, if I take mine, is there's going to get reduced? Or anything like that, don't worry about it. You do what's best for you. So again, especially if it's an ex-spouse situation. And again, that's why the rules are different for ex-spouses and spouses, is so if I'm divorced, I don't want to have to worry about what he's doing. Most likely he's probably going to make the wrong decision anyway, I don't want that to impact my decision. I want to make the right decision regardless of what bad decisions he made in the past. So keep that in mind.
Again, we talked about full retirement age for spousal and ex-spousal benefits, is different than the age 70 retirement benefit. And again, if you're making that decision, we actually had an interesting new prospective client that we're working with right now where her own benefit is slightly less than what her spousal benefit would be at full retirement age. So just to use some numbers. So his benefit is about, let's call it $3,500 a month, her retirement benefit is 1,700 a month. So technically, her spousal benefit would be, call it 1,750. But 1,750, if she filed for spousal benefits, would be the maximum she could get. However, if she delays her own benefit till 70, her benefit's going to continue increasing. Does that make sense? I know it can be a little bit confusing. So if she waits on her own benefit instead of filing early for spousal benefits, she's going to get more in the long run.
Wendy McConnell: So she takes the spousal benefits-
Eric Blake: No, she avoids taking the spousal.
Wendy McConnell: Okay, she she'd take her own.
Eric Blake: So basically because you think about them, they're almost even. Yeah, what's the difference? They're both the same.
Wendy McConnell: Right.
Eric Blake: So 1,700 is 1,700, or 1,750 at her full retirement age. But if she says, "Okay, no, I'm not going to take either at this point, I'm going to delay until 70." Her own benefit continues increasing with those delayed credits.
Wendy McConnell: Okay, I got it.
Eric Blake: So she's going to get 24% more by waiting to take her own benefit at 70 versus taking a slightly higher spousal benefit at 67.
Wendy McConnell: Because you're also deleting those zeros in the amount of years that you've worked that makes you eligible [inaudible 00:29:57].
Eric Blake: Not necessarily. If you're not working, let's say it's just a, you're going to retire at 65 or whatever the case might be. This is more the delayed credits of your own benefits. So if I delay my own retirement benefit, it will increase at maximum benefit of age 70.
Wendy McConnell: Got you.
Eric Blake: Spousal benefits stop at full retirement age. They don't go up any more than full retirement, is at maximum 50%. So 50% of his is more today, but it's much less than a hundred percent of her age 70 benefit in the future.
Wendy McConnell: Now I get it. Thank you, Eric.
Eric Blake: Awesome. Perfect. And that's, again, that's a challenging one because you think, well, what's the... Again, 1,700, 1,750, what's the difference? It's a huge difference if you say, "Okay, well that 1,700 is going to be about 2,200 by the time you get to age 70.
Wendy McConnell: Yes.
Eric Blake: But again, people don't always think about that. It's more thinking, well, I'm just thinking about today. I'm not worried about 3, 4, 5 years from now.
Wendy McConnell: Right.
Eric Blake: A couple other things, tax implications, I'll touch on that just briefly. So the taxes on social security benefits are determined by what's called provisional income. And I'm not going to ask, there's no pop quiz on that. So I'm going to just give you some basics on that. So it's basically total income, whatever, so you're earning or you're taking IRA distributions, whatever other income sources you have, plus half of your social security benefit, plus any tax-exempt interest. So let's say you've got some municipal bonds or tax-free bonds or a tax-free money market, whatever, that actually gets added back. So just to add another confusing variable into it, they tell you that that's federally tax-free, but yeah, we're going to include it when we calculate the taxes on your social security.
Wendy McConnell: Okay.
Eric Blake: So that's provisional income. And so just know, all I want you to know from this is that anywhere between zero to as much as 85% of your social security benefit will get included in your taxable income based on what your provisional income is. So you're never going to be taxed on a hundred percent of your social security benefit. The maximum social security benefit that will be included in taxable income is 85%.
Wendy McConnell: Got it.
Eric Blake: Let's say social security is all you've got, then it's going to be taxed as zero.
Wendy McConnell: Okay.
Eric Blake: Now another one that really gets people confused is that there is no longer the option of filing for one benefit and then later switching. Once you file at the whatever you file, you're going to, what they call, you're going to have deemed to have filed, which means, whatever one is bigger, that's the one you're going to get. There is no file for one and switch to another one later.
Wendy McConnell: Okay.
Eric Blake: And that's a really confusing one as well, because that used to be, there actually used to be a way, where you could, if you were born basically before, let's call it before 2015, you could file for my own benefit, suspend, which means now I have technically filed, my spouse could file for spousal benefit like we were talking about originally, and then allow their own to continue to grow. And that's really, really a form of double-dipping, and they actually did away with that in 2015, back to some of the changes that have happened that people have heard about, but may not be completely aware of how they actually impact you today. So again, once you have filed, you are deemed to have filed for whatever options are available to you at that time, you're going to get the greater of whichever benefit is available.
Wendy McConnell: Okay. So what are some of the action items we need to get to?
Eric Blake: Absolutely. So the first thing is, again, go to ssa.gov. Go to the social security website, check your earnings history, are you eligible for a benefit based on your own work record? That's the first thing you want to do. You also want to check that, I always tell people to check, also, just make sure your earnings history is accurate. With all the identity theft and things going on, there's stories of people actually filing for social security benefits off somebody else where they've stolen their identity and filed for benefits. So check your record, make sure it's accurate, but also more importantly, find out, am I eligible for social security benefits off of my own record? Next thing along with that is then find out what your full retirement age is. Number two, find out what your full retirement age is. Again, if you're born in 1960 or later, it's going to be 67. If you were born before 1960, it's going to be 66 and some number of months.
Third thing you want to do is, again, am I or do I expect to be eligible for a spousal or ex-spousal benefit based on the length of the marriage? Same thing if you have multiple marriages. If you had multiple marriages and they were at least 10 years, again, potentially eligible for benefits based on each of those. If there was two or three or four, however many there were. Any of them that lasted at least 10 years, and it's 10 full years, that's no nine and a half years, nine years, six months, nine years, 11 months. It's 10 years. So don't get confused with that.
The other thing is, again, I've touched on this a couple of times, but don't confuse spousal or ex-spousal benefits with survivor benefits. You'll not get a hundred percent of your spouse or your ex-spouse's benefit while they are still alive. That's again, another one of those areas that I get questions about a lot is, "Don't I get what he's getting?" Or something along those lines. So don't confuse spousal and ex-spousal benefits with survivor benefits. If your spouse or ex-spouse is still alive, the maximum you're eligible for off their record is 50%.
Wendy McConnell: Okay.
Eric Blake: Last thing is just knowing what is my social security strategy? What am I going to do? You just don't want to leave money on the table. Once you get within about five years of your social security eligibility date, so let's call it 57, at the earliest, and you can do, people can do this earlier, but at least by 57, once you're within that first five years, start looking at what your social security strategy is. What am I eligible for? Outline your plan, so you can make those adjustments as you get closer to actual retirement.
Now, actually, if you're less than five years from eligibility, put that plan together today. Check out episode 14 in addition to this one we're doing today, where we did the top five things that every woman should know about social security. The other thing, again, in the show notes, I'm going to share a link to our Social Security Quick Reference Guide for 2024. We'll share a link to that in the show notes so that you can take a look at that. And that actually will tell you a lot. That'll give you a lot of information on full retirement age benefits and some of the different percentage reductions based on certain ages, so make it a lot easier for you as well. So definitely go to ssa.gov. If nothing else, check your earnings history, make sure that it's good. But this quick reference guide will give you a lot of very helpful information as well.
Wendy McConnell: Well, thank you for enlightening me today, Eric. I appreciate it.
Eric Blake: Absolutely. Thank you so much for joining us today. Please like, follow and share the show. If you'd like to learn more about our firm, you can visit our website at www.blakewealthmanagement.com. If you want to listen to some of the previous episodes, ask a question, maybe even suggest a topic for the show, you can access the quick reference guide I mentioned, as well as some of the other free resources that we've got on www.thesimplyretirementpodcast.com, and we'll see you again on the next episode of the Simply Retirement Podcast. In the meantime, please remember that retirement is not the end of the road, it is the start of a new journey.
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