Impact of Early Retirement on Social Security Spousal Benefits

NEWTOWN SQUARE, PA — According to the Social Security Administration, of the total aggregate income received by retired Americans, Social Security benefits provide the lion’s share:  42.5 percent.    Because of the primacy of this income source in retirement, making educated choices regarding the benefit is critical.  

An article in the May 2007 issue of the Journal of Financial Service Professionals, entitled “Social Security Spousal Benefit Considerations in Early Retirement,” asks the important question: ‘what are the implications of early retirement for married couples who will be receiving the spousal benefit?’

Author Clarence C. Rose, PhD introduces his article by detailing the Social Security landscape.  He notes that, according to the Social Security Administration, a majority of Americans – approximately 60 percent - elect to begin receiving retirement benefits at age 62, the youngest eligible age.  In 2007, opting for early retirement at that age means a 25 percent reduction in the amount received as compared to waiting until age 66.  And the reduction in benefits is slated to increase over time, so that early retirees in 2022 will take a 30 percent hit.

Rose notes that for two out of three Americans, Social Security provides at least half of their retirement income.  He then enumerates the eligibility requirements for spousal benefits, which generally can be said to accrue to the spouse of a worker when the spouse’s income is less than half of the workers, if a variety of other conditions are met.

For those couples for which the Social Security spousal benefit is part of their retirement income, the long-term financial implications of early retirement are generally negative.  Rose uses a number of approaches to illustrate this finding.  First, a table shows the substantial reduction in monthly Social Security benefits for both the covered worker and his or her spouse when they choose early retirement.

A second table illustrates the combined percentage reduction in benefits for a husband and wife opting for retirement at age 62 whose combined benefits would have been $3,000 per month at full retirement age.   Those taking early retirement in 2007 would effectively lose $800 per month.  Alternatively, they could be said to receive only 73.33 percent of their full monthly benefit.

Table 3 illustrates the approximate Social Security benefits based upon the covered worker’s annual average income during the 35-year time period considered for determining benefits for a husband and wife using the spousal benefit.  Again, opting for early retirement is shown to dramatically reduce the combined benefits for a married couple receiving the spousal benefit.

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Finally, the author addresses the argument that by receiving smaller checks for an additional four years (the period of time between age 62 and 66), the ultimate benefit “evens out” over time.   A present value analysis shows that, although no one can predict for certain how long they or their spouse will live in retirement, delaying Social Security benefits is likely to yield a greater sum for most couples.

Clarence C. Rose, PhD, is a professor of finance and director of the MBA and Academic Outreach Programs in the College of Business and Economics at Radford University in Radford, VA.  Dr. Rose can be reached at [email protected].

Published by the Society of Financial Service Professionals, the Journal of Financial Service Professionals is one of the oldest and most prestigious journals in the financial planning field.  From its roots in insurance, pensions and estate planning, the Journal has evolved into a vehicle for groundbreaking applied research in all areas of financial planning, including retirement planning, investments, tax, health care, economics, ethics and other topics of concern to insurance and financial advisors. 

Founded in 1928, the Society of Financial Service Professionals is the standard bearer for excellence in professionalism, advanced continuing education, and ethical guidance for the nation's top financial advisors. The Society has approximately 19,000 members, each of whom holds one or more of the following recognized financial service credentials: CLU®, ChFC®, CFP®, CPA, JD (licensed), RHU®, REBC®, CEBS® , CLF®, CFA©, CTFA®, CPC, EA and graduate degrees in financial services.  Active in nearly 200 Chapters nationwide, Society members assist the public in their efforts to achieve personal and business-related financial goals. Consumers can obtain free financial information or find a Society member in their community by calling the Society's toll-free National Consumer Referral Service at 1-888-243-2258 or visiting www.financialpro.org.

NOTE TO EDITORS:  A sample copy of the Journal of Financial Service Professionals is available upon request to journalists; contact Lisa Wetherby by phone: 610-526-2513, or email: [email protected].

Contact: 

Lisa Wetherby
(610) 526-2513
[email protected]