She stood in the storm, and when the wind did not blow her away, she adjusted her sails.
-- Elizabeth Edwards
Even in the most thoughtfully run and financially independent of lives, there will be heart-wrenching twists and turns. Some of these life transitions are expected and planned accordingly, while others are abrupt and uncertain. It’s no secret that a significant number of marriages end in divorce, raising many emotional and financial uncertainties. However, understanding the benefits entitled to you will help build a secure framework for the next chapter of your life.
Baby boomers have among the highest divorce rates of any generation and this population is growing. This trend, often called ‘gray divorce’, shows that Americans over the age of 50 are divorcing more frequently than at any time in the past. Apart from the emotional heartbreak of separating from your spouse, the challenge that is most apparent in gray divorce is this shift from saving for retirement as a couple to saving as an individual. And while divorce may lead you to think that you’ve been dealt faulty cards, a silver lining may still exist – your Social Security benefits.
The Basics: Understand Ex-Spousal Benefits
The Social Security Administration (SSA) operates with a philosophy that a divorced person may deserve a personal benefit, having been the long-term partner of a member of the workforce. The benefit is similar, in fact, to the spousal benefit that is available to someone who is still married. However, to receive Social Security benefits on your ex-spouse’s record, the following conditions must be met:
Your marriage must have lasted 10 years or longer.
You are currently unmarried.
You are age 62 or older (60 if your spouse is deceased).
Your ex-spouse is entitled to Social Security benefits.
Your own benefit is less than the benefit you’re entitled to receive based on your ex-spouse’s work record.
But simply knowing the qualifying criteria for divorced spousal benefits isn’t quite enough. A deeper understanding of the rules, as well as the guardrails around them, can have a substantial impact on your Social Security payments. Here are five guardrails worthy of careful consideration:
1. Patience Pays
Although Social Security benefits are available for collection as early as age 62, if you wait until age 70 the SSA will reward you for your patience. For example, if you were born in 1960 or later, you would only receive 70 percent of your Social Security benefits at age 62. But if you wait, your benefits will increase by eight percent each year from your Full Retirement Age (FRA) until 70.
2. Length of Marriage Matters
If you were married for ten years, you may be eligible to receive spousal Social Security benefits or survivor benefits based on your ex-spouse’s record.
A spousal benefit is equal to 50% of your former spouse’s benefit if you start taking payments at your FRA (66 or 67 depending on when you were born). If your ex-spouse was a high earner, it is possible that half of their benefit is larger than your own. In this case, it makes sense to claim a spousal benefit, even if you are divorced. For divorcees who survive their ex-, the survivor benefit is equal to the full benefit due to your now-deceased former spouse.
If you are considering divorce as your marriage is nearing the ten-year mark it’s important to prioritize your health and emotional state, but financially speaking it could be worth thousands of dollars in Social Security payments to postpone your divorce until you’ve been married for at least ten years.
3. Remarriage Can Be Expensive
Since more than 70 percent of divorcees get married again, it’s important to understand that remarrying makes you ineligible for divorced spouse’s benefits unless the later marriage ends. However, despite this loss of divorced spouse benefit due to remarriage, if you remarry after age 60 you can retain the survivors benefit off the working record of you ex. Essentially, the SSA will pay you the greater of your retirement benefit, the survivors benefit off your ex-spouse, or the spousal/survivor benefit off your current spouse…but not all three.
4. Switching Can Help
For divorced spouses, there’s an option that lets you file a ‘restricted’ application with the SSA (at your FRA) to collect a divorced spousal benefit, which is half of what your former spouse gets. Then, once you reach 70, you stop receiving the ex-spousal benefit and switch to your own benefit, which will be 32 percent higher than it would have been at your FRA.
Divorced widows (and widowers) have even more options. If, for example, you are currently collecting Social Security benefits on your own record, and your ex-spouse dies, you can switch to survivor’s benefits if the payment is larger. Or, if you’re collecting survivor’s benefits, you can switch to your own retirement benefits if it offers a larger payment.
5. Mums the Word
To apply for spousal (or survivor) benefits off the record of a former spouse, you don’t need to know their earnings history or even where they live. The SSA will simply want to see proof of divorce and a ten-year marriage history. Even better, your former spouse won’t be notified by the SSA and their own payments are unaffected. If, by chance, your ex-spouse has remarried you’ll still receive eligible spousal benefits without regard to his/her current marital status.
Take the Lead
Divorce can be complicated, and Social Security considerations can make the situation even more so. While understanding the rules and guardrails around Social Security and divorce is important, it’s your responsibility to claim what you’re entitled to. Contact your local Social Security office and provide the proper documentation to claim your benefits.
Adjust Your Sails
Having gone through the divorce process myself, I resonate with the metaphor of sitting in the eye of the hurricane. Spinning all around you are tricky questions with complicated answers: Who am I? How do I want to spend the rest of my life? Will I still be able to retire as planned? What am I legally obligated to receive through this divorce? Can I visit my children or grandchildren as often as I used to? Can I afford to leave behind a legacy?
As chaotic as the storm may feel, the eye of a hurricane in and of itself is calm. Without regard to who initiated the process, the decision to end a marriage often, and sometimes surprisingly, makes space for a sense of peace and resolution. Now, you sit at the center, observing the next set of obstacles and hurdles that you must face. As challenging and overwhelming as it may seem, you don’t need to start this next stage of your life alone. In fact, this is your chance to maximize all of life’s opportunities and resources. One way of doing so is to develop a financial plan and build a relationship with a financial advisor that can guide you out of the storm, give you peace of mind, and protect you from future twists and turns.
For a visual recap on the rules and restrictions regarding your Social Security benefits and divorce, download our infographic Social Security and Divorce: How Divorce Can Affect Your Benefits.
Kevin McVeigh, CFA is a Managing Director and Partner at Exchange Capital Management, a fee-only, fiduciary financial planning firm. The opinions expressed in this article are his own.