MONEY QUESTIONS by Matthew Illian, CFP®
Q: My husband and I divorced several years ago, and I am about to turn 62 in December. Since my ex-husband (he’s a year older) and I parted ways, we don’t talk. So I have no idea if he has retired yet or if I am eligible for a Social Security benefit based on his earnings record. Can you please explain the Social Security benefits due to a divorced spouse?
Searching for Security
Many are unaware that divorced spouses have more flexibility to maximize their benefits than their married counterparts. Too many people jump to get their benefits as early as possible, and on average, they give up tens of thousands of dollars of lifetime benefits.
First we need to start with some ground rules to qualify for spousal benefits as a divorcee (even if your husband has already remarried).
1. Your marriage lasted at least 10 years.
2. You are not currently remarried.
3. You are at least age 62 (unless you are also disabled).
If all three are true, start by setting up a meeting with the Social Security Administration to find out what benefit amount you are eligible for as a divorced spouse. You will only need a copy of your divorce decree and your ex-spouse’s Social Security number. Your claim will not affect your ex’s benefit in any way. In fact, Social Security will not notify your former spouse at all.
The extra flexibility available to a divorced spouse is that he or she does not need to wait until an ex-spouse files for Social Security to collect a spousal benefit. In contrast, married spouses must wait until after their higher paid spouse has filed for benefits to claim their own.
However, if you are filing for a spousal benefit before your ex, your divorce must be at least two years old. This rule must have been added to discourage retirees from getting divorced just to speed up a spousal benefit. An ex-spouse becomes “independently entitled” two years after a divorce.
If you file before your Full Retirement Age (FRA), age 66 for people born between 1943 and 1954, you will be given the greater of either your own personal benefit or no more than 50% of your spouse’s benefit.
There are two reasons why you should probably delay taking your benefit after age 62. Benefits earned before FRA are subject to a deferment if you earn over $14,160. These reduced paychecks will be repaid in later years with dollars that have not earned interest and have reduced purchasing power due inflation, the saver’s old enemy.
More importantly, if you wait until age 66, you can claim a spousal benefit and delay claiming your personal benefit until age 70. This quirk in Social Security allows you to claim what I call the “free spousal” benefit, and it’s often overlooked. This tactic will allow your own benefit to grow an additional 32%.
For example, assume your ex-husband is due to receive $1,800 per month as his basic benefit at FRA and your personal benefit is $975 per month. As the ex-spouse, you would only be eligible to receive a spousal benefit of $900 per month (50% of $1,800) at age 66, and so you might quickly assume the spousal benefit is useless. Assuming a life expectancy of 85 years for a woman, this mistake would cost you $52,560 in lifetime benefits.
Instead, you should claim your “free spousal” benefit of $900 per month at age 66 and delay claiming your personal benefit until age 70. The ability to choose a lower spousal benefit is only available to those who wait until after their FRA to receive money from Social Security. By delaying your claim, it will have grown an additional 32%, to $1,287 a month, from age 70 on. By following this strategy versus starting at 62, you will reach the break-even point at age 73.
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