Social Security spousal benefits not useful, new study reveals

By Bryan Hay

Erin Cottle Hunt

Social Security benefits play a large role in providing monthly income as people plan for their retirement, but a newly published study co-authored by Erin Cottle Hunt, assistant professor of economics, reveals that the program’s spousal benefits are not very useful.

“In this paper, we’re looking at Social Security benefits that are specific to couples,” Cottle Hunt says. “Looking from a theoretical economic perspective, are these benefits good for society? Or, at least, are they good for these single-earner couples?”

Social Security mainly provides retirement benefits to people who have worked, but the program also has spousal benefits that are often overlooked by economists. When the program was created in the 1930s, many families had a working father and a mother who stayed at home with their children, and so some of the benefits are designed for single-earner couples. 

Social Security provides three types of benefits to retirees: retirement benefits as a life annuity, spousal benefits until the death of the primary earner, and survivor benefits after the death of the primary earner.

“The spouse who’s not working can receive a retirement benefit based on the earnings of the partner, and then there’s also a survivor benefit if her partner dies,” says Cottle Hunt, who worked with Frank Caliendo, senior associate dean and professor of economics and finance at Utah State University, on “Social Security and Longevity Risk: An Analysis of Couples,” which was recently published in the Journal of Public Economic Theory.

The study looks at individuals and couples trying to hedge their joint longevity risk.

“Saving for retirement is challenging, because you don’t know when you or your spouse will die,” Cottle Hunt says. “How quickly do you spend down your savings? We solve that math problem for the joint longevity problem, which is tricky.” 

From a policy perspective, the spousal benefits from Social Security are not useful, the study concludes. 

“We do not find much of a welfare role for spousal benefits. On the other hand, survivor benefits are incredibly important: removing survivor benefits while leaving retirement benefits and spousal benefits in place would make the couple worse off than in a Laissez Faire economy where they had to self-insure their joint survival risks,” the paper says.

“Likewise, the Social Security program could be reconfigured in a way that improves welfare without an increase in taxes or a reduction in retirement benefits: reduce spousal benefits and use the cost savings to increase survivor benefits. In this way, the program would help couples to better hedge their longevity risk.”

The study finds that the spousal benefit is not very useful to single-earner couples, an important result because it is an expensive feature to finance. In contrast, eliminating the survivor benefit makes single-earner couples much worse off. 

“In fact, the couple would be better off fending for themselves” without Social Security than participating in a program with only retirement and spousal benefits and no survivor benefits, the study says. 

If the goal is to help single-earner couples insure their joint longevity risk, then the current Social Security system could improve the well-being of single-earner couples even more if it were revised to pay larger survivor benefits and smaller spousal benefits, holding taxes and retirement benefits fixed, the study notes.

“To the extent that policy makers wish to better protect widows who did not work, increasing the survivor benefit by shrinking the spousal benefit is a budget neutral way to achieve that goal,” it says. “Finally, while dual-earner couples do benefit from the annuitization feature of Social Security, their welfare gains are significantly smaller than those accruing to single‐earner couples.”

“The survivor benefits are very useful,” Cottle Hunt says. “Social Security pays a widow who hasn’t worked, if her spouse dies, which is very valuable to a couple, on the order of 25% of their consumption for the second partner. There’s just a huge risk that when the working partner dies, the household doesn’t have any income at all. Social Security could insure you against that risk, if it pays you a benefit when your spouse dies.”