I recently had the opportunity to co-present a workshop for attorneys with my colleague, Melissa Joy, CFP® of the Center for Financial Planning in Southfield, Michigan on Social Security and Elder Divorce.
For those that weren’t able to attend, this blog recaps our “Top 3 Things We Bet You Didn’t Know” about Social Security and divorce.
1. It is NOT better to claim Social Security early, at age 62!
Generally, as long as you can afford to wait to age 66 and you’re in good health with a reasonable life expectancy, it’s far better to wait to full retirement age (FRA) to collect, in order to maximize lifetime Social Security benefits.
This seemed counter-intuitive for many of the seminar attendees, as it was for me when I began researching this topic. However, there is a steep reduction in benefits for those who collect early. That reduction lasts a lifetime. Keeping in mind that Social Security is an income stream that cannot be outlived, and life expectancy for Americans has increased dramatically, any number crunching will back up this tip. Think Social Security might go bankrupt? Despite what you’ve heard, this is an extremely unlikely scenario for the baby boomer generation and beyond.
2. 10 years married is the magic number.
Ex-spouses are entitled to receive up to 50% of their former spouse’s Social Security benefit or 100% of the benefit on their own work history, whichever is greater. However, in order to qualify, the marriage had to last 10 consecutive years and the recipient ex-spouse cannot be remarried.
Suppose your client, Sarah, is in a marriage with one high-wage-earning spouse and one lower-wage earner. Sarah’s ex-husband’s FRA Social Security benefit is $2,400. Sarah could receive 50% of her ex’s benefit ($1,200 per month) or the benefit on her own work history, $700 per month. Wouldn’t Sarah prefer bumping up to the divorced spouse retirement benefit in lieu of claiming her own?
Unfortunately, we see cases all the time where the marriage lasted close to 10 years — but not quite! This is often a critical planning error. Some couples might be willing to stay married for an additional year to have access to a larger lifetime income stream for the low-wage-earning spouse.
Keep in mind that when a divorced spouse’s retirement benefit is paid, it doesn’t impact the high-wage earner’s benefit in any way. They can still receive 100% of their own Social Security benefit. In fact, as long as the high-wage earner was married to each spouse for 10 consecutive years, he or she could have up to 4 ex-spouses collecting a divorced spouse benefit on their earnings.
3. Warn your client about remarriage before age 60.
Social Security widow benefits can be up to 100% of the deceased spouse’s Social Security benefit. This rule applies to ex-spouses as well. Sarah in the example above would be entitled to receive as much as $2,400 per month (remember that her own workers’ benefit was $700 per month and monthly spousal benefits were $1,200). However, there is a little-known caveat: the ex-spouse can’t remarry before age 60. In the example above, Sarah would surely consider putting off her pending marriage to her new beau, Mark, until she turns 60. If the remarriage occurs after age 60, Social Security widow benefits would still be available.
These are just a few of the topics discussed at the seminar. My next article will discuss the effects of benefit inequity in a long-term marriage. In the meantime, we’re here to help. If you need assistance, contact Jacki at email@example.com or Melissa at Mellisa.Joy@centerfinplan.com