I am having trouble understanding which formula is used to calculate spousal benefits, if spouse retires early. Here is an example. Assume both spouses' FRA is 67, wife's PIA is $800, and husband's PIA is $2,000. Now if wife retires at 67, and husband is already retired, then I understand wife would get 800 + 200 = 1,000, which is 50% of husband's PIA.
Suppose instead, wife retires at 62 (5 years early), and husband is already retired. When wife retires, would she get $560 (70% * $800) + $130 (65% * $200) = $690, where the 35% reduction in the $200 spousal benefit comes from 25/36 per month for 36 months + 5/12 per month for the remaining 24 months? Or, would she instead get $650, which is calculated by that same 35% reduction above against the original spousal benefit maximum of $1000?
The same question would pertain if the husband retired AFTER the wife had already begun taking early benefits from her own work record. At the time the husband then retired, and the wife's benefits were therefore recalculated. I assume her then current age (is this a correct assumption?) would be used to determine how much reduction (if any) spousal benefits would accrue, but which of the above techniques would be used (ie figure the then current delta from the original spousal benefit of $200 and add that to what she is currently receiving, or calculate the current spousal amount from the husband's original 1/2, and then pay that if it was more than she was currently receiving?
Thanks so much for all the work you do to increase our understanding of all these intricate rules!
When a person qualifies for both retirement benefits on their own record and an excess spousal benefit, any applicable reduction for age is calculated separately based on when the person starts drawing each benefit.
In your first example, the wife would get a combined rate of $690 (i.e. $560 + $130), and the manner in which you calculated that amount is correct If the wife filed for her benefits at age 62 and her husband wasn't yet drawing his benefits, she would initially only get the $560 from her own account. Then, when her husband filed for his benefits her excess spousal benefit amount would be reduced based on the number of months prior to FRA (if any) that she starts drawing the spousal benefit. Up to the first 36 months of applicable reduction would be calculated at 25/36 of 1%, and any additional reduction months would be calculated at 5/12 of 1%.
For example, if the wife was age 63, or 48 months prior to her FRA of 67, when her husband started drawing his benefits, her excess spousal rate would be reduced by 30% to $140. That would then be added to her retirement benefit to make her combined rate $700.