Divorce, Survivorship and Other Retirement Scenarios
This is the fourth post in our series on maximizing your social security benefits. In our last post, we looked at how and when to apply for social security. In this post we’ll explore different scenarios so you can see the impact your decisions can have on your social security benefits.
Considerations for divorcees
If you are divorced, you may be able to claim benefits based on your ex-spouse’s benefits. This depends on how long you were married and your age. You will only need to provide the Social Security Administration your ex-spouse’s Social Security number, a copy of your marriage certificate and your divorce decree.
If you make a claim on your ex-spouse’s benefits it will be based on his or her Primary Insurance Amount. Some believe this type of claim would affect their ex’s benefits or involve them in the process. The truth is, your ex would not even be notified and your divorcee’s benefit is not tied to any family maximum that would impact your ex.
Additionally, your benefits may be affected if you were divorced and decide to remarry.
What happens when a spouse dies?
When a person who is eligible for Social Security dies, certain members of the family may be eligible for survivor benefits. This depends on many factors, including: your age, when you married, and how long you were married. It also depends on if or when you remarry. If you have dependent children, you may be eligible for benefits at any age.
What amount can you get? You may get as much as your late spouse’s Primary Insurance Amount and any extra increase from Delayed Retirement Credits earned up to the time of death. As is the case with taking your own retirement benefits, the earlier you start before Full Retirement Age the more it is reduced. You get the entire benefit if you start at your Full Retirement Age.
If you are collecting survivor benefits and your own benefits are higher (at any time) you can switch to the higher benefit.
Scenarios for married couples
Let’s take a look at what happens to retirement benefits under different scenarios for married couples.
The husband works full-time while the wife runs the household, cares for the children and also has a temporary job. Here are the choices this couple will have when the husband reaches his Full Retirement Age:
Choice #1: The husband can claim his benefits now, which would allow his wife to start her spousal benefit. Let’s say the husband would receive $2,000 per month and the wife would receive $1,000. That gives them a monthly total of $3,000 per month (plus cost of living increases each year). The wife’s survivor benefit will be $2,000.
There is a potential cost if the husband starts his benefits early. The husband could receive an additional $640 per month income if he waits and starts his benefits at age 70. This could cost them thousands of dollars plus cost of living adjustments to the survivor’s benefit, should one of them pass away.
Choice #2: The husband can wait to start and earn Delayed Retirement Credits to increase his benefit up to age 70. When he starts taking benefits at age 70, his monthly benefit will be $2,640 and her benefit will be $1,000 for a total of $3,640 per month. Her survivor benefit will be $2,640 per month.
There is a cost if the husband waits to file for his benefits to earn Delayed Retirement Credits and get the increased checks at age 70. His wife would not get her monthly spousal benefit of $1,000 for four years. That’s $48,000, plus cost of living adjustments, if they waited until age 70. Further, her spousal benefit does not earn Delayed Retirement Credits, so there is nothing to gain by her waiting for benefits.
Solution: A rarely used option called “Claim & Suspend.”
How the “claim and suspend” option works:
The husband can submit a claim for his benefits and on the application in the remarks section, request to suspend his benefits, but start his wife’s spousal benefit without waiting.
Here are the benefits of “claim and suspend”:
- The wife doesn’t have to wait and starts receiving her $1,000 per month spousal benefit. This gives them $48,000 over four years while waiting for the husband’s benefit to reach its maximum.
- Should one of them pass away, the survivor benefit has been maximized by the Delayed Retirement Credits as the survivor gets to keep the larger of the two checks. In our example, if the wife lives 5 years longer than the husband that gives her $38,400 more in survivor benefits. If she lives 10 years longer that is $76,800 more.
Both the husband and wife work full-time, earn good wages and are now age 66. They have a decision to either start taking their own benefits now or wait and earn Delayed Retirement Credits.
If you recall with the first scenario, there is an immediate cost to waiting as well as a potentially sizable cost in the long term for starting benefits too soon. Unfortunately, “claim and suspend” is not a good option in this scenario because each of their individual benefits is higher than their spousal benefits.
Solution: This couple can take advantage of an option that allows a person to switch from one’s own benefit to one’s spousal benefits and vice versa. This could even work if the couple were divorced or widowed.
Here’s how it works: Let’s say the wife has the higher Primary Insurance Amount of $2,500 and with Delayed Retirement Credits can maximize their benefit to the highest amount possible. She can start taking the husband’s spousal benefit of $1,000 per month—half of his benefit—while they wait for hers to grow. She can take this benefit regardless of whether she continues to work or retires. At age 70, the wife switches to her own benefit which is now larger because she’s earned Delayed Retirement Credits. This is important because the survivor gets the higher of the two amounts. Should she pass away after age 70, the husband will get the higher amount for the rest of his life.
The benefits of following this strategy are:
- The husband can begin to take his benefit checks right away.
- Married, divorced or widowed, the wife can take her spousal benefit then switch to her own at age 70.
- By waiting until age 70, the wife’s benefit will increase to $3,300 plus cost of living adjustments and, upon her passing, her husband can switch to her higher benefit.
This couple is getting paid $48,000 to wait for the wife to maximize her Delayed Retirement Credits; the net result is a substantial increase in their lifetime income and survivor benefits.
There is no one-size-fits-all solution when it comes to planning your retirement, but hopefully this information will give you a better sense of the options that are available.
Do you have questions about your retirement benefits? Share them here or submit them via the contact form on our website.
As always, get the facts and do the math!