September 01, 2015

In the heat of marital stress and strife, spouses may find themselves amidst a flurry of expletives, lashing out at the other as a “good-for-nothing.” Turns out, they may be good-for-something — more money than was ever expected.

This article explores parts of the complex web of Social Security rules. By learning a few key principles, you may help your clients receive more money from Social Security.

In this article, three principles of Social Security optimization will be discussed:

1| Social Security Eligibility for Divorcé(e)s

2| The Impact of Applying Early

3| Benefits of Delaying Social Security

Eligibility

Receiving Benefits on an Ex-spouse’s Work Record

Most people are generally familiar with the notion that one becomes eligible for Social Security after working for 40 quarters in a Social-Security eligible job (some jobs, like teachers in certain states with their own pension system, are not Social Security-eligible). What far fewer are aware of is the benefit attached to one’s spouse or ex-spouse’s work record.

In order to receive a benefit on an ex-spouse’s work record:

1| The marriage must have lasted for 10 years prior to divorce

2| The primary worker must be at least 62 years old

3| The recipient must be at least 62 years old

4| The recipient must not be remarried

If the divorce occurred two or more years ago, the primary worker does not have to have applied for benefits — the individual simply must be eligible for benefits. However, if the divorce occurred within two years, the primary worker MUST have applied for benefits for the recipient to access benefits.

If these requirements are met and a benefit is filed on an ex-spouse’s work record:

1| The ex-spouse will not be notified

2| Any benefit received from the ex-spouse’s work record will NOT reduce the ex-spouse’s benefit at all nor any benefits of their current or future spouse if they remarry

Benefit Amounts at Different Ages

Depending on when benefits are applied for, the recipient may be eligible for a benefit of up to 50% of the ex-spouse’s monthly benefit (again, with no reduction in the benefit the ex-spouse receives). If the recipient has worked in a Social Security-eligible job for 40 quarters, he or she is entitled to a benefit on the individual’s own work record. In this case, the recipient is entitled to the GREATER OF the benefit on his or her work record OR the benefit based on the ex-spouse’s work record. Not both.

If the recipient and the ex-spouse are full retirement age or older, the recipient can claim 50% of the benefit on the ex-spouse’s work record. If younger, a reduced benefit can be claimed as early as age 62. If both were born between 1943 and 1954, then full retirement for Social Security purposes occurs at age 66.

www.socialsecurity.gov/planners/retire/agereduction.html

How Benefits are Calculated

All Social Security benefits are calculated from the Primary Insurance Amount (“PIA”). This is the monthly benefit the worker is to receive at full retirement age. Any adjustment associated with receiving benefits early or delaying benefits is calculated based on the PIA.

The Impact of Applying Early

If the recipient applies for a benefit on his or her ex-spouse’s work record

At age 62: The recipient is eligible for 35% of the ex-spouse’s PIA

At age 63: The recipient is eligible for 37.5% of the ex-spouse’s PIA

At age 64: The recipient is eligible for 41.7% of the ex-spouse’s PIA

At age 65: The recipient is eligible for 45.8% of the ex-spouse’s PIA

At age 66: The recipient is eligible for 50% of the ex-spouse’s PIA

Assumptions:

1| The primary worker has reached age 62

2| The recipient was born between 1943 and 1954 and full retirement age is age 66

3| The recipient does not have a benefit on his or her own work record

Benefits of Delaying Social Security: Found Money

If eligible for Social Security based on an individual’s own personal work history, Social Security may be delayed beyond full retirement age. Each year beyond full retirement age, benefits increase 8% per year (plus any Cost-of-Living Adjustments (“COLAs”)). These increases may be earned each year until age 70. Delaying benefits may translate into a significant amount of money.

At age 66: The worker is eligible for 100% of his/her PIA

At age 67: The worker is eligible for 108% of his/her PIA

At age 68: The worker is eligible for 116% of his/her PIA

At age 69: The worker is eligible for 124% of his/her PIA

At age 70: The worker is eligible for 132% of his/her PIA

Assumptions:

1| The recipient was born between 1943 and 1954 and full retirement is at age 66

2| COLAs are additive

IMPORTANT NOTE: Delayed credits only apply to one’s own PIA. Delayed credits may not be earned by waiting to receive a benefit based on an ex-spouse’s work history. Example: Joan and John are the same age with 66 as full retirement age. John is the primary worker. John may delay receiving Social Security until age 70. The most Joan can receive based on John’s work record is 50% of his PIA (his age 66 benefit).

Putting it all together

If one is eligible for Social Security based on his or her own work history, personal benefits may be delayed WHILE CONCURRENTLY claiming an ex-spouse’s benefit (up to 50% of the ex-spouse’s benefit). Then, at age 70, after receiving 8% per year increases on one’s own benefit, switching from the ex-spouse’s benefit to one’s personal benefit is a strategy that can amount to additional tens of thousands of dollars.

Survivor Benefits

In order to receive a benefit on an ex-spouse’s work record when that ex-spouse dies:

1| The marriage must have lasted for 10 years prior to divorce

2| The surviving spouse receiving benefits must be at least 60 years old

3| The surviving spouse receiving benefits must not be remarried before age 60

Benefit Amounts at Different Ages

Depending on when benefits are applied for, the recipient may be eligible for a benefit of up to 100% of the deceased ex-spouse’s PIA.

If the recipient has worked in a Social Security-eligible job for 40 quarters, the individual is entitled to a benefit on his or her own work record. In this case, he or she is entitled to the GREATER OF the benefit on his or her work record OR the benefit based on the deceased ex-spouse’s work record. Not both.

If the surviving spouse is full retirement age or older, he or she can claim 100% of the full retirement age benefit of the ex-spouse. If younger, a reduced benefit can be claimed as early as age 60.

At age 60: The survivor is eligible for 75.6% of the deceased ex-spouse’s PIA

At age 61: The survivor is eligible for 79.6% of the deceased ex-spouse’s PIA

At age 62: The survivor is eligible for 83.7% of the deceased ex-spouse’s PIA

At age 63: The survivor is eligible for 87.8% of the deceased ex-spouse’s PIA

At age 64: The survivor is eligible for 91.9% of the deceased ex-spouse’s PIA

At age 65: The survivor is eligible for 95.9% of the deceased ex-spouse’s PIA

At age 66: The survivor is eligible for 100% of the deceased ex-spouse’s PIA

Assumptions:

1| The recipient was born between 1943 and 1954 and full retirement age is at age 66

Summary

Very little is straightforward as it relates to Social Security benefits — factors such as age, marital status, health, and overall financial well-being, must be considered in order to make the optimal set of decisions. Applying the principles mentioned in this article may result in receiving tens of thousands of additional dollars. Depending on how long one lives, the result may be even more dramatic.

L. Adam Stock is a registered representative and investment advisor representative with Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor, 8755 West Higgins Road, Suite 550, Chicago, IL 60631, 773-693-6100 offering insurance through Lincoln affiliates and other fine companies. This information is from sources deemed reliable. It is not our position to offer legal or tax advice. Next Level Planning Group is not an affiliate of Lincoln Financial Advisors Corp.

CRN-1228177-061615

Guest Author:

L. Adam Stock