Maximizing Social Security Benefits and the ‘Deemed Filing’ Rule

Every day, millions of Americans are applying for their Social Security monthly retirement and disability benefits including retirees and their spouses, former spouses, widows/widowers, dependent parents of deceased children and surviving children of deceased parents.

Many individuals preparing to claim Social Security retirement benefits are not aware of the Social Security “deemed filing” rule. For individuals who want to maximize their lifetime Social Security benefits, understanding the “deemed filing” rule is critical for maximizing their lifetime Social Security retirement benefits.

This column discusses the Social Security “deemed” filing rule. Also presented are suggestions for married couples in which both spouses are eligible for a Social Security monthly retirement benefit as to how maximize their lifetime benefits.

Who is Affected by the “Deemed Filing” Rule?

The “deemed filing” rule with respect to Social Security benefits affects married couples and formerly married (divorced) couples. The “deemed filing” rule affects a spouse when that spouse initially files for his or her Social Security monthly retirement benefit before his or her full retirement age (FRA) while the other spouse has filed and receiving his or her own monthly benefit. The spouse filing for the first time before his or her FRA will be “deemed” to have filed for all benefits available to him or her. That means that if a “spousal” benefit is available, the spouse will receive a “spousal” benefit in addition to their retirement benefit – whether the spouse wants the “spousal” benefit or not.

What is a “spousal” benefit? For married couples in which both spouses are eligible for their own Social Security monthly retirement benefit, there is the “higher-earning” spouse (the spouse with the higher monthly Social Security benefit) and the “lower-earning” or no “earning spouse (the spouse with the lower or no monthly Social Security benefit). If half of the ‘higher-earning” spouse’s Social Security monthly benefit is more that all of the “lower-earning” spouse’s Social Security benefit, then the “lower-earning” spouse will automatically receive half of the “higher-earning” spouse’s monthly benefit as a “spousal” benefit.

The following example illustrates:

Example 1. Matthew reached his FRA, age 66 years and 6 months, on October 12, 2023 (he was born April 12, 1957). Matthew applied for his Social Security monthly benefit when he reached his FRA and received his first monthly benefit check of $3,000 in November 2023. Matthew’s wife Meredith will reach her FRA, age 66 years and 6 months, on April 28, 2024 (she was born October 28, 1957). Meredith intends to file for her Social Security monthly benefit in April 2024 when she reaches her FRA. Her monthly Social Security benefit is $1,200. Since half of Matthew’s monthly Social Security benefit ($3,000) of $1,500, is more than $1,200, Meredith will automatically receive a $1,500 Social Security monthly benefit (her monthly benefit of $1,200 plus a $300 spousal benefit). She does not have to formally apply for half of Matthew’s monthly benefit.

An important Social Security retirement benefit filing rule needs to be discussed.

When an individual files for his or her Social Security monthly retirement benefit before reaching his or her FRA, the individual’s monthly benefit will be reduced by a certain percentage. The percentage reduction depends on the individual’s FRA. The spousal benefit will also be reduced by a percentage when the individual applies for his or her Social Security monthly benefit before his or her FRA. The further the individual is from his or her FRA, the larger percentage reduction, with a maximum reduction when the individual files at age 62.

The following table presents:

(1) FRA according to year of birth;

(2) The reduction to an individual’s Social Security retirement benefit if he or she applies at age 62; and (3) The reduction to the Social Security spousal benefit if the individual applies at age 62.

The following example illustrates the reduction to the Social Security monthly retirement benefit and the Social Security monthly spousal benefit when one spouse applies for his or her Social Security monthly retirement benefit at age 62:

Example 2. William will reach his FRA, age 66 years and 8 months, on September 27, 2024 (he was born on January 27, 1958). William intends to apply for his Social Security monthly retirement benefit in September 2024, receiving his first Social Security monthly retirement benefit of $3,200 in October 2024. In the meantime, William’s spouse Sharon (born June 15, 1961) applied for her Social Security monthly retirement benefit in June 2023 when she became age 62. Her FRA is age 67. The amount of her monthly retirement benefits at age 67 is $1,200. Since Sharon elected to start receiving her monthly benefit at age 62, her monthly benefit is reduced by 30 percent. A 30 percent reduction is 30 percent of $1,200, or $360. The $360 is a permanent reduction to Sharon’s Social Security monthly retirement benefit, resulting in her net retirement benefit equal to $840.

When Willam files for his Social Security monthly benefit in September 2024, he will receive $3,200 per month. Half of $3,200, $1,600, is more than Sharon’s own FRA monthly benefit of $1,200. Under the “deemed filing” rules, the Social Security Administration will add $400 to Sharon’s monthly benefit ($1,200 of Sharon’s monthly retirement benefit plus $400 resulting in a $1,600 monthly benefit. However, the spousal benefit will be reduced by 35 percent (see the table above) of $400, or $140, resulting in a net spousal benefit of $260. Given that Sharon started taking her Social Security monthly benefit at age 62, the spousal benefit will also be reduced. In this case by 35 percent. Together with the $360 reduction to Sharon’s own Social Security benefit, Sharon’s Social Security monthly retirement benefit is equal to:

$1,200 less $360 plus $260 equals $1,100

The “deemed filing” rule affects a lower earning spouse when the spouse files for his or her monthly benefit for the first time and the other spouse is receiving his or her own Social Security benefit. If the spouse files for his or her own benefit before their FRA, then that spouse will be “deemed” to have filed for any and all benefits to him or her. That means if spousal benefits are available, the spouse will receive spousal benefits in addition to his or her own retirement monthly benefit – whether he or she wants the spousal benefit or not.

The lower earning spouse will also not only receive both benefits, but both benefits will be permanently reduced as a result of filing before that spouse’s FRA. The consequences of filing early (before FRA) and the subsequent reduction to monthly benefits can never be changed. See Example 2, above, in the example of Sharon who filed for her Social Security benefit before she reached her FRA. Her monthly Social Security benefit is permanently reduced by $360. The “deemed filing “rules apply to worker (individual) benefits, spousal benefits, and ex-spousal benefits. They do not apply to survivor benefits.

If an individual’s Social Security monthly retirement benefit is higher than 50 percent of the ex-spouse’s Social Security monthly retirement benefit at his or her FRA, then the ex-spouse will receive his or her own benefit and half of the ex-spouse’s Social Security monthly benefit. The following example illustrates:

Example 3. Janet, age 65 was married to Mark, age 66 for 15 years before they divorced seven years ago. Janet’s Social Security monthly retirement benefit at her FRA is $1,400. Mark’s Social Security monthly retirement benefit is $3,500. Janet decides to apply for her Social Security retirement benefit at her FRA. Even though Mark is not receiving his monthly benefit at his FRA, Janet will automatically receive $1,750 per month, not her own $1,400 per month, because half of Mark’s monthly benefit is more than all of her benefit.

Married Couples Should Make Their Claiming Decisions a Team Effort

Those individuals who are married must think of their Social Security claiming decision as a joint decision. What one spouse decides to do will have a direct impact on the other spouse and vice versa. The “deeming rule” is one reason looking at one spouse’s claiming strategy as a joint decision is so important.

There are two key point relating to spousal benefits that both spouses should be aware of:

1. In order for one spouse to receive a spousal benefit, the other spouse must be receiving hir or her own monthly benefit. If the other spouse is not receiving his or her own benefit, then the spouse does not qualify for spousal benefits. The exception to this rule is when it comes to independently entitled divorced spouses.

2. If one spouse is entitled to his or her own Social Security monthly retirement benefit, that spouse is always paid that monthly benefit. If a spousal benefit is available, under the “dual entitlement” law, the spousal benefit is layered on top of the spouse’s own benefit.

The maximum spousal benefit is calculated as follows: One spouse is entitled to the difference between one-half of the other spouse’s monthly benefit of his or her FRA less the spouse’s FRA monthly benefit. For example: If the spouse’s FRA monthly benefit is $1,200 and the other spouse’s FRA monthly benefit is $3,600, then the maximum spousal benefit is equal to:

One-half of $3,600 ($1,800) less $1,200 equals $600

The $600 spousal benefit assumes that the lower-earning spouse files for his or her benefit at FRA. If the spouse files for his or her benefit before his or her FRA, then the spouse’s own benefit and spousal benefit will be reduced (see example 3).

Finally, when it comes to claiming Social Security benefits, spousal benefits are at their maximum when the lower-earning spouse is at his or her FRA. There is no advantage to be gained when the lower-earning spouse who is entitled to a spousal benefit to delay claiming his or her benefit past his or her FRA. Unlike one’s own Social Security monthly benefit which is increased (through “delayed retirement credits”) by delaying the receipt of monthly benefit past FRA, there is no increase in a spousal benefit by delaying receipt of a Social Security monthly retirement benefit past one’s FRA.