How claiming Social Security early cost a couple more than they feared

Q: I am 62 and my wife is 68 and no longer working. Most of her working years were with the civil service, and only during her last 10 years did she contribute to Social Security. When she turned 62 she claimed Social Security benefits because we needed the income. She has been receiving $690 a month for the past six years or so. Will she be able to claim half of my Social Security benefits when I retire at age 66, or did we make a mistake by having her file early? Gil Candia, Pensacola, Fla.

A: So, at first blush, it looks like your wife’s spousal benefit will be subject to the Government Pension Offset, in addition to the usual reduction for early claiming, says Elaine Floyd, a certified financial planner at Horsesmouth in New York City.

“A spouse who claims her own benefit at 62 and later adds on a spousal benefit does not jump up to 50% of the primary worker’s primary insurance amount,” says Floyd. “Rather, she gets a spousal add-on equal to the difference between her primary insurance amount, or PIA, and half of his PIA. This difference is added to her existing reduced benefit to give her a total benefit that is somewhat less than 50% of his PIA.”

What’s more, if she is receiving a pension from her civil service job under which she did not pay into Social Security, the spousal add-on will be reduced by two-thirds of the pension amount under the Government Pension Offset (GPO), says Floyd. “This could completely offset the spousal add-on to give her no spousal benefit at all,” she says.

So did you make a mistake by having your wife file for early benefits? "Maybe," says Floyd.

If your wife is currently receiving $690, she could have held out for $920 ($690 divided by 0.75) by waiting until age 66 to file. “And since she may end up not receiving a spousal benefit because of the GPO, the higher amount might have come in handy,” says Floyd. “But if your spouse and you needed the income when she turned 62, then you did what you needed to do,” says Floyd.

Robert Powell is editor of Retirement Weekly, contributes regularly to Paste BN, The Wall Street Journal and MarketWatch. Got questions about money? Email  rpowell@allthingsretirement.com .