Most Americans know that Social Security provides retirement benefits, but many are unaware of the program’s full scope and the various benefits available. From spousal benefits to disability coverage, Social Security offers financial protection that extends far beyond what many people realize. This article explores some lesser-known aspects of Social Security that could significantly impact your financial planning.
Spousal Benefits: Support Even Without Your Own Work History
One of the most overlooked aspects of Social Security is the spousal benefit program. Even if you’ve never worked in Social Security-covered employment, you may still be eligible for benefits based on your spouse’s work record. Here’s what you should know:
- You can receive up to 50% of your spouse’s full retirement benefit amount if you wait until your full retirement age to claim.
- To qualify, you must be at least 62 years old, and your spouse must have already filed for their own benefits.
- If you also qualify for benefits based on your own work record, Social Security will pay your earned benefit first. If your spousal benefit would be higher, you’ll receive an additional amount to reach that higher level.
This provision is especially valuable for couples where one spouse had significantly lower earnings or spent time out of the workforce caring for children or family members.
Survivor Benefits: Financial Protection for Families
Many people don’t realize that Social Security functions as a life insurance policy of sorts through its survivor benefits program. When a worker dies, certain family members may be eligible for benefits based on the deceased’s earnings record:
- Surviving spouses can receive full benefits at their full retirement age or reduced benefits as early as age 60.
- A disabled surviving spouse can receive benefits as early as age 50.
- Surviving divorced spouses may qualify if the marriage lasted at least 10 years.
- Unmarried children under 18 (or up to 19 if still in high school) can receive survivor benefits.
- Adult children who became disabled before age 22 may receive benefits indefinitely.
- Under certain circumstances, dependent parents, grandchildren, or stepchildren may also qualify.
Perhaps most surprisingly, a surviving spouse caring for the worker’s child who is under 16 or disabled can receive benefits at any age. These benefits provide crucial financial support during a difficult time and should be factored into any comprehensive financial plan.
Disability Benefits: Protection Before Retirement
Social Security Disability Insurance (SSDI) is essentially an early retirement benefit for those who become unable to work due to severe disability. To qualify:
- You must have worked long enough and recently enough to be insured under Social Security.
- Your disability must be expected to last at least one year or result in death.
- The disability must prevent you from performing substantial gainful activity.
The approval process for SSDI can be lengthy and stringent, with approximately 65% of initial applications being denied. However, the benefits can be substantial:
- After receiving SSDI for 24 months, you become eligible for Medicare regardless of your age.
- Your dependents, including your spouse and minor children, may qualify for auxiliary benefits.
- There are work incentives designed to help you return to employment if your condition improves.
Unlike private disability insurance, which typically replaces a percentage of your income for a specific period, SSDI can provide benefits until you reach retirement age, at which point they convert to retirement benefits.
The Social Security Fairness Act: A Game-Changer for Many
A significant recent development that many Americans may not be aware of is the Social Security Fairness Act, which removed longstanding penalties that affected government employees and their spouses.
Previously, two provisions—the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO)—reduced Social Security benefits for those who earned pensions from jobs not covered by Social Security. This often affected teachers, police officers, firefighters, and other government employees in certain states.
The Social Security Fairness Act eliminated these penalties, resulting in:
- Full Social Security benefits for those who earned pensions from non-Social Security employment
- Increased benefits for surviving spouses of government employees
- Greater retirement security for millions of public servants and their families
Spousal Benefits Under the New Law
One of the most significant impacts of the Social Security Fairness Act concerns spousal benefits. Here’s what you need to know:
- A spouse may now receive a full spousal benefit even if they worked in a job not covered by Social Security and earned their own pension.
- This applies even if the spouse never personally worked in Social Security-covered employment.
- For example, a teacher who worked for 30 years in a state where teachers don’t participate in Social Security can now potentially receive up to 50% of their spouse’s Social Security benefit without reduction—a benefit that was previously reduced or eliminated by the GPO.
For many couples approaching retirement, this represents thousands of additional dollars in annual income that wasn’t previously available.
Lesser-Known Filing Strategies
Beyond these major benefits, there are several strategic approaches to claiming Social Security that can maximize your lifetime benefits:
- Delayed credits: For each year you postpone claiming benefits beyond your full retirement age (up to age 70), your benefit increases by 8%.
- Restricted application: In some cases, you may be able to claim only spousal benefits initially and switch to your own higher benefit later.
- Ex-spouse benefits: If you were married for at least 10 years, you might qualify for benefits based on your ex-spouse’s record, even if they’ve remarried.
Taxation of Benefits
Many retirees are surprised to learn that their Social Security benefits may be subject to federal income tax:
- Up to 85% of your benefits may be taxable, depending on your combined income.
- Thirteen states also tax Social Security benefits to varying degrees.
- Strategic withdrawal planning from different retirement accounts can help minimize the taxation of your benefits.
The Future of Social Security
Despite frequent discussions about Social Security’s future, the actual solvency risk is often overstated in public discourse. Here’s what you should know:
- The Social Security Board of Trustees projects that the program’s reserves will be depleted in 2035.
- Even in this scenario, ongoing tax receipts would still fund approximately 83% of scheduled benefits initially, gradually declining to about 73% over the long term.
- This means Social Security would continue providing substantial benefits, though reduced, even without legislative changes.
Several potential solutions exist to improve Social Security’s long-term financial outlook:
- Increasing the full retirement age – Likely implemented with a phased approach based on birth year to give younger workers time to adjust their retirement plans.
- Adjusting payroll taxes – This could involve increasing the current 6.2% rate paid by both employers and employees, or raising/eliminating the income cap (currently set at $168,600 in 2025).
- Means testing benefits – Reducing or eliminating payments to wealthy retirees who have substantial income from other sources.
- Expanding the workforce – Increasing the size of the working-age population through immigration policy changes or higher labor force participation.
- Combination approach – Most policy experts agree that the most realistic and fair solution would involve modest adjustments across multiple areas rather than dramatic changes to any single aspect.
As demographics and economic conditions change, further adjustments to ensure the program’s sustainability are likely. Staying informed about these developments is crucial for effective retirement planning.
Conclusion
Social Security is far more than just a retirement program. Its comprehensive protections for spouses, survivors, and people with disabilities make it one of the most important financial safety nets for American families. By understanding all the benefits available—particularly in light of recent changes like the Social Security Fairness Act—you can make more informed decisions about your financial future and potentially secure thousands of additional dollars in benefits that you might otherwise miss.
Disclaimer
The views and opinions expressed are for informational and educational purposes only as of the date of writing and may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The information provided does not take into account the specific objectives, financial situation, or particular needs of any specific person. All investments carry a certain degree of risk and there is no assurance that an investment will provide positive performance over any period of time. Equity investments are subject to market risk or the risk that stocks will decline in response to such factors as adverse company news or industry developments or a general economic decline. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, tax risk, political and economic risk, and income risk. As interest rates rise, bond prices fall. Non-investment-grade bonds involve heightened credit risk, liquidity risk, and potential for default. Foreign investing involves additional risks, including currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. These risks are magnified in emerging markets. Past performance is no guarantee of future results.