Newly divorced? If you’re the lesser-earning partner, know that the social security benefits you’re entitled to receive after divorce are not up for negotiation. Our advisor Kimberly Nelson, CFA ® recently authored a Forbes column explaining social security facts and strategies following your divorce.
Click here to read (or listen to) the full article.
While you may still be many years away (decades even!) from thinking you need to worry about retirement, managing cash flow once you get there is a critical component to living well at every stage of life. This is especially important if you are divorced from a partner whose ability to earn is significantly greater than your own…but there is good news if you are the lesser-earning partner when it comes to social security. Regardless of your arrangement for alimony, child support, or asset division in your final judgement, the social security benefits you are entitled to receive after divorce are not up for negotiation. Let’s dive into this a little deeper.
First, the facts: You are always entitled to your own social security benefits if they are higher than your ex-spouses. If you have worked at least 10 years, full time, you are vested into the Social Security system. This includes any non-US citizens with proper work-status here in the US, and it includes any US citizens who choose to live abroad.
But what if you were married to someone who made substantially more money than you? If you are divorced and were married for at least 10 years, you are eligible to claim their social security instead of your own once you hit age 62 and are not currently remarried.
- Whether your ex-spouse is still alive or has passed away, you are entitled to benefits based on their work history, and you can continue to receive them until you die, regardless of where your ex is in life, or even if he/she chooses to remarry.
- The benefits you are entitled to are based on your ex-spouse’s TOTAL contributions to social security, not just contributions made during your marriage. This is a very unique fact, because you likely just finalized a divorce where the timing of the income, or asset purchased mattered a lot – this is the backbone of the “separate property” argument during divorce. It is not a factor when it comes to social security, which is great news for many divorcees.
And now, the fiction: There are quite a few myths or common misperceptions out there about social security when it comes to divorce.
Let’s bust a few of those right now:
- It is FALSE to think that you are only entitled to the social security benefits of your most recent ex-spouse. If you were married and divorced twice, and both marriages were more than 10 years in duration then you can claim the benefits of the higher-earning ex-spouse when you file for social security.
- It is FALSE if you’ve heard that you cannot start to receive social security benefits until your ex-spouse retires – Your ex doesn’t have to be collecting social security in order for you to start collecting – However, if your ex is not receiving benefits and you want to begin receiving social security, the divorce must be final for 2 years before you can start receiving benefits. If your ex is already receiving benefits, the 2-year rule does not apply.
- It is also FALSE to think that benefits paid to an ex-spouse might reduce the benefits paid to the spouse who earned the benefit in the first place. If you claim your ex’s social security, it will not reduce the amount they receive at all. If they remarry, their new spouse will also be entitled to their benefits regardless of any prior spouse also receiving benefits.
So how do I know if I qualify to receive benefits based on my ex’s work history instead of my own?
- Before you even begin down this road, make sure that your ex qualifies for a higher benefit than you do on your own! You can do this by comparing your Benefits Estimate Statements (more on this later). You cannot receive BOTH benefits; you can only take the higher of the two.
- The marriage must have lasted at least 10 years.
- You are not currently married (or you married someone else after age 60).
- You are 62 years of age or older (or you’re disabled, or your ex has passed away).
What exactly is the spousal benefit that I might receive? Your spousal benefit is 50% of what your ex-spouse is eligible to collect once they reach full retirement age. Full retirement age is based on your birth year. For anyone born before 1954, their full retirement age is 66. Anyone born between 1955 and 1959 will reach full retirement age after turning 66, but before age 67, and anyone born after 1960 will reach full retirement age when they turn 67.
The maximum benefit depends on the age you retire. For example, if you retire at 67 in 2023, the maximum benefit would be $3,627 per month to the spouse that paid into social security. The ex-spouse would be entitled to half of that, or $1,813 per month.
The age at which you start drawing benefits affects this monthly payout greatly. If you start drawing benefits before full retirement age, let’s say at age 62, then the maximum monthly benefit to the ex-spouse would be half of only $2,572….which is just $1,286 per month.
If you were to delay your benefits until age 70, the benefit would balloon to $2,277 per month to the ex-spouse (which is half of the maximum benefit to the primary earner of $4,555.)
- You do not need your ex-spouse to do anything in order to claim their benefits for yourself – no participation on their part is required in order for you to file for benefits, and no court has jurisdiction over the social security benefits. All you have to do is show proof that you were married for at least 10 years when you file for social security with the Social Security Administration (SSA).
How can I find out what I am eligible to receive in Social Security without going through my ex? You can call the Social Security Administration at 800-772-1213 to get a Request for Earnings and Benefits Estimate Statement, also known as a Form SSA-7004. If you have your ex’s social security number and birthdate (check the last tax return you filed together for this information) you should be able to get an estimate of the benefits you’ll be entitled to. When you are ready to apply to start receiving benefits, you can do so on the SSA website, www.ssa.gov.
So, let’s strategize: The ability to collect social security based on your ex’s earnings could make a big difference in your bottom line during retirement, so it’s important to understand what is in your control here so you can make the best decisions for yourself.
- First of all, if you have been married for 9 years and you feel like you want to separate, it might make sense to wait to finalize your divorce until the magical 10 year mark so that you an be eligible for your soon-to-be-ex’s benefits. Notice how I didn’t say “file for divorce” in that last sentence. You can file for divorce before you’ve been married for 10 years, you just cannot finalize the divorce before 10 years if you are hoping to claim social security benefits on your ex’s work history.
- Once you have finalized your divorce, you need to wait for 2 years before you file to receive social security if you plan to claim your ex’s (unless your ex is already receiving theirs at the time the divorce is final). You cannot claim their benefits unless you wait through the 2-year period.
- If you are in your late 50s, it might make a lot of sense to wait until you reach age 60 to remarry so that you can maintain your eligibility to receive your ex’s social security – unless your new spouse has at least as much of a benefit as the one you are giving up!
- It is best to consult a financial advisor to help you figure out the optimal age to begin receiving social security benefits. There is a significant difference in benefit amounts at the various retirement ages as stated above, so doing what is best for you might require a little extra thought and consideration.
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Disclosure: This material by Coastal Bridge Advisors is for informational purposes only and is presented solely as an illustration of the typical Advisor experience. Coastal Bridge Advisors does not provide tax or legal advice, and nothing contained in these materials should be taken as tax or legal advice. Unique client experiences and past performance do not guarantee future results.
