Boosting the Lower Earner's Social Security Benefit

It's fairly common for lower-earning spouses to take a reduced Social Security benefit before reaching full retirement age. Some couples have second thoughts about that decision. You might be able to take a do-over or at least boost the benefit.

When you take your own benefit early, it's permanently reduced. Take it at the earliest age of 62 and it's clipped by 25%. A lower-earning spouse who claims a spousal benefit early also gets hit. Instead of getting 50% of the higher earner's full-retirement-age benefit, the lower earner claiming a spousal benefit at age 62 receives 35% of the higher earner's benefit.

It could make sense for the lower earner to claim a benefit early if the higher earner plans to delay until age 70. (For each year you delay past full retirement age, you get a delayed retirement credit of 8%.) With the lower earner claiming early, "they get a little bit of income coming into the household for a longer time," says Judith Ward, senior financial planner for T. Rowe Price. For some couples, that extra income enables the higher earner to afford to delay his larger benefit.

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If the higher earner dies first, the lower earner can switch to a survivor benefit, which is worth 100% of the higher earner's benefit as long as the survivor claims it at full retirement age or later. You can use the free "Social Security Benefits Evaluator" tool at www.troweprice.com/socialsecurity to plug in various claiming scenarios.

Here are ways for a lower earner to undo the decision to claim early. The maneuvers differ based on whether the lower earner is collecting her own retirement benefit or a spousal benefit.

A retirement benefit. If the lower-earning spouse claimed her own benefit within the past 12 months, she can withdraw her original claim. (Use Form SSA-521, "Request for Withdrawal of Application.") She must pay back all benefits she received. When she reapplies, she will get a larger monthly benefit.

Missed that 12-month window? If the lower-earning spouse is at full retirement age, she can suspend her benefit and earn delayed retirement credits until she reapplies. Say the lower earner claimed a reduced monthly benefit of $750 at age 62. At her full retirement age of 66, she suspends the benefit. She could restart it at 70 and the benefit would be 32% larger—at $990. That's nearly the same amount she would have received if she had waited until her full retirement age to claim her benefit.

Working spouses also can get a bit of a benefit boost. If a lower-earning spouse claims a benefit early but is still working, the earnings test limit will sock her benefit. But all is not lost—she'll make up for lost ground later.

Here's how the earnings test works. If the worker takes benefits before full retirement age, she will give up $1 for every $2 she earns over the annual earnings limit ($15,720 for 2015). In the year she turns full retirement age, she'll forfeit $1 of benefits for every $3 she makes over a higher earnings limit ($41,880 for 2015). The limit no longer applies at full retirement age. But the loss of those benefits is temporary. Once she hits full retirement age, the government will recalculate her benefit and increase the monthly payment so that over her projected lifetime the benefits that were forfeited to the earnings test will be repaid.

There's another way in which working while claiming Social Security can lead to higher benefits. A retirement benefit is calculated based on a worker's 35 highest-earning years. If the wife was out of the workforce caring for children and has only 15 years of earnings, a year of earnings will replace one of those 20 years with no earnings.

A spousal benefit. If you've taken a spousal benefit early, you don't have much recourse to undo the decision or to boost your spousal benefit. There is a chance for a mulligan, though.

Say the husband, at full retirement age, filed for his benefit and then suspended it, enabling his wife to take a spousal benefit early. Within the first 12 months, he could withdraw his application for benefits. "If he withdraws his application, then any other applications off that record would have to be withdrawn," says Jim Blair, a former district manager for an Ohio Social Security office and a partner at Premier Social Security Consulting, in Sharonville, Ohio. All of the spousal benefits would have to be paid back, and both spouses could start their benefits over at a later date.

Or, Blair says, the lower-earning spouse can withdraw just her application for the spousal benefit, even if her husband doesn't withdraw his application. She will have to pay back all the spousal benefits she has received. There's an advantage to this scenario in which only the spouse withdraws, says Blair. When you delay benefits, you can choose to take a lump sum payout of six months' worth of benefits (and accept a monthly benefit that's calculated as if you had applied six months earlier). But, Blair says, by filing and suspending at age 66, the husband would be entitled to receive retroactive benefits back to age 66 if down the road he wanted to take a lump sum instead of taking a higher monthly benefit. While his monthly benefit would return to his full retirement age amount, the maneuver provides flexibility if the couple later decides that delaying the husband's benefit wasn't the right move.

But suspending isn't helpful for the spousal benefit. At full retirement age, the spousal benefit can't be suspended to earn delayed retirement credits because those credits cannot be earned on a spousal benefit.

There's another way to boost spousal benefits. If the lower earner is still working and her earnings exceed the annual earnings test limits, the spousal benefit would be subject to the earnings limits. And the forfeited benefits will eventually be calculated back at full retirement age, which will boost her spousal benefit.

Unlike when dealing with your own benefit, working longer won't do much to boost a spousal benefit. A spousal benefit is actually a combination of the lower earner's own benefit and a benefit off the higher earner's record. While work would boost the lower earner's own benefit, it will lower the amount received from the higher earner's record, leaving the total the same.

Say the lower earner qualifies for a reduced spousal benefit worth $750, with $400 from her earnings record and $350 from her husband's record. By working, perhaps she boosts her own benefit to $450, but she will then only get $300 from her husband's record.