By Steve Tepper, CFP®, MBA
Spousal benefits are an important part of Social Security, and for many people, those benefits are still available even after divorce.
While rules on spousal benefits for married couples are pretty well known to retirees and those retiring imminently, spousal benefits for divorcees are not as well known.
The spousal rules are pretty straightforward: Once one spouse reaches retirement age (at least age 62) and begins to take benefits, the second spouse can take 50% of the first spouse’s benefit, provided the second spouse is also at least age 62 and the marriage has lasted more than one year.
The determination of whether to take spousal benefits is simple: If 50% of your spouse’s monthly benefit is greater than 100% of your benefit, you should take the spousal benefit. This is particularly useful when one spouse was the “primary” earner and had substantially higher lifetime earnings.
But benefits also are available if the couple divorces. A divorced spouse can still elect to take half of the ex-spouse’s benefits, provided all of the following criteria are met:
- The marriage must have lasted at least 10 years;
- The divorce must have occurred at least two years before filing the application for spousal benefits;
- The ex-spouse electing to take spousal benefits must not be remarried; and
- Both ex-spouses must have reached retirement age (at least age 62).
Unlike spousal benefits for married couples, it doesn’t matter if the higher-earning spouse has actually elected to begin receiving benefits. As long as he or she has reached age 62, the other spouse can file to receive half of the benefit if it is more than 100% of his or her own amount.
Another important aspect of divorcee benefits is it doesn’t matter if the higher wage earner remarries, only the ex-spouse electing to take spousal benefits. And the ex-spouse’s election does not have any impact on the higher earner’s benefits, or spousal benefits available to the new spouse.
Where it starts to really get fun is when reduced benefits for early retirement are calculated. Remember, if you file for benefits at age 62, you will receive substantially less each month than if you wait until age 66, and you can still increase your monthly benefit by delaying filing until up to age 70 (there are no added benefits for waiting past age 70 to file).
To determine which retirement age option is best, you need to perform a “breakeven analysis,” the sort of things MBAs like me love to do while the rest of the world is doing boring stuff like going out on a date or binge watching Game of Thrones.
For a married couple, electing to take spousal benefits at age 62 will result in 48 payments over four years that would not be received if you wait until age 66. But waiting until age 66 means receiving a monthly benefit that is 30% higher than the age 62 benefit. Using basic assumptions of 3% inflation and 6% growth, the breakeven point is around 20 years. So, bottom line: If you think you’re going to live past age 86, you should delay filing for benefits until age 66. And if, like me, you plan to live forever (as Steven Wright says, “So far, so good”), delay filing until age 70.
But the early benefits reduction isn’t as severe for divorcees filing for spousal benefits, which means the breakeven point is actually about 16 years, or age 82.
There is also a very cool provision in the Social Security Act available to divorcees born January 1, 1954, or earlier, provided they meet all the other spousal benefit eligibility requirements. Under the restricted-application provision, the divorcee can file for spousal benefits at age 66, and then switch to his or her own benefit at age 70. During those four years, his or her own benefit will continue to accrue delayed retirement benefits. In other words, the benefit will be 32% more than it was at age 66, and that could make his or her own benefit more valuable than the age 66 spousal benefit.
Divorcees can file for spousal benefits online at www.SSA.gov or by visiting a local Social Security office.