Is It Better a Spouse Not Earn 40 Credits Due to WEP?
My wife (born Oct. 1952) has been employed as a teacher for over 30 years in several US and international school systems. After ten years of teaching in Texas, she took her Texas Retirement System (TRS) amount of $604/month when we moved out of state for new employment. Some of her other employment settings contributed to Social Security and she now has 37 credits.
I have beyond 40 credits (born Nov. 1952) and my SSA account currently estimates I will receive $1699/month at FRA in Nov. 2018.
If I apply for benefits at FRA (Nov. 2018), the SSA representative said I would receive about $1699/month and if my wife then applies for spouse benefits, she would receive 50% of my benefit -- approximately $850/month without any deduction for WEP because she has 37 credits and would not qualify for individual benefits -- other than Medicare. Is this accurate?
In the next several months, we may be offered teaching positions in a system which would contribute to each of our Social Security accounts (FICA) and each of us would earn credits based on individual salaries of approximately $60,000+ per year. We would expect to be in these new positions for 2 or 3 years.
If we accept these new positions, then my wife certainly will earn the additional credits to receive full SSA benefits -- but also the possibility of a reduced monthly amount due to WEP at her full retirement age (66) in Oct. 2018 since she has taken the Texas retirement amount of $601/month. The SSA cannot give her an estimate of her potential monthly benefit amount once she reaches 40 credits -- but we estimate the amount to be between $450-$650 per month at her FRA.
Is it better for her not to cross the threshold of 40 credits and apply for spouse benefits based on my earnings record?
I can't think of a scenario, including yours, where a person would be better off to avoid becoming insured for benefits because of Social Security's Windfall Elimination Provision (https://www.ssa.gov/pubs/EN-05-10045.pdf).
The SSA representative who told you that your wife could receive a spousal benefit equal to a full one-half of your full retirement age benefit amount (PIA), may or may not be correct depending on whether or not she meets an exception to Social Security's Government Pension Offset provision (https://www.ssa.gov/pubs/EN-05-10045.pdf). Unless your wife meets an exception, her spousal benefit will be reduced by two-thirds of the amount of her teacher's pension. Assuming that her earnings as a teacher were always exempt from Social Security taxes, GPO will almost certainly apply to her spousal benefits. However, if she started paying Social Security taxes on her earnings as a teacher prior to her retirement, it's possible that she could be exempt from the GPO reduction. Details of this particular exemption can be found in Social Security's operations manual: https://secure.ssa.gov/apps10/poms.nsf/lnx/0202608102DAL.
Whether or not your wife is exempt from GPO, there would still be no advantage for her to avoid becoming insured on her own account. When a person is entitled to benefits on their own record, and for excess spousal benefits, here is how the calculation works. Say your wife's full retirement age benefit (PIA) is $600 before WEP, and $266 after WEP is applied, and your PIA is $1700. If she filed at full retirement age and is subject to WEP and not GPO, she would get the $266 on her own account, plus $584 from your account, totaling $850 per month. In other words, the spousal benefit is reduced by the WEP reduced PIA amount, not the PIA prior to the WEP reduction.
If your wife is not exempt from GPO, she may well be better off becoming insured on her own record. GPO can reduce a spousal or widow's benefit to zero if the non-covered pension is more than 150% of the Social Security benefit, whereas WEP reduces the amount payable, but doesn't eliminate it. In any case, the combined benefit payable to an insured individual will be no less than if they were ineligible for benefits on their own account.