One of the most important benefits of the Social Security program is the spousal benefit. This payment is made at retirement to the spouse of the individual who paid into the Social Security system over time.
The spousal benefit payment was originally intended to provide some income in retirement for the non-working spouse in a single-income household, and it remains an important benefit for many couples who had one spouse out of the workforce for some time, for example to raise a family.
It is important to note that the spousal benefit is not only available to currently married couples. Single individuals who were previously married may also be entitled to a spousal benefit, based on their ex-spouse’s earnings record. And a planning opportunity may exist for some divorced individuals, by coordinating the claiming of the ex-spousal benefit first, and later switching to their own Social Security benefits.
Who is Entitled, and When are They Eligible?
To claim a Social Security spousal benefit (which is 50% of the working spouse’s Primary Insurance Amount), either as a current spouse or a divorced spouse, the claimant must be entitled to the benefit and eligible for it.
For a married couple, entitlement means that the individuals have been married for at least one year, are still married, and – most importantly – the worker spouse has filed for his or her own benefits. In other words, a spousal benefit can only be claimed when the primary worker is receiving his or her own individual retirement benefit as well.
In a divorce scenario, the entitlement rules for spousal benefits are a bit different. For the divorcee to claim an ex-spousal benefit, the marriage must have lasted at least ten years, the divorce must have been completed at least two years ago, the divorcee must be currently unmarried (though the ex-spouse may be remarried), and the worker ex-spouse must be at least 62 years old. Importantly, the worker ex-spouse does not need to have filed for his or her own retirement benefit, as is the case when the couple is married.
For anyone to claim a spousal benefit, they must be age eligible. To be eligible, the spouse/divorcee must be at least 62 years old, although the benefit will be reduced by 8.33% per year for the first three years if it is claimed early, and by 5% per year for each additional year if claimed that early. In order to receive a full spousal benefit, the spouse/divorcee must have reached Full Retirement Age. Note that there are special eligibility rules that apply if there is a disabled child or a child under the age of 16 in the household. Note also that delayed retirement credits are not available with spousal benefits, and so there is no benefit to waiting past Full Retirement Age to claim.
Example: Fred and Mary were married for 11 years before they divorced. They have been divorced for 5 years. Mary is therefore entitled to an ex-spousal benefit when Fred is at least age 62. However, Mary will not be eligible to claim that ex-spousal benefit until she is also age 62. Mary will need to wait until her Full Retirement Age to receive a full ex-spousal benefit.
What About Remarriage?
A divorcee can only claim a benefit on an ex-spouse’s record so long as the divorcee remains unmarried. The presumption is that one wouldn’t need an ex-spouse’s benefits if remarried, because one could receive the current spouse’s benefits instead. So if a divorcee gets remarried, the ex-spousal benefits will stop.
Example Continued: Fred and Mary are divorced, but their marriage lasted at least 10 years. Mary is entitled to a spousal benefit because she is currently unmarried. If Mary gets remarried to Bill, however, she will no longer be entitled to an ex-spousal benefit from Fred. She may become entitled to a spousal benefit from Bill in the future. If Fred remarries but Mary doesn’t, Mary will remain entitled to her ex-spousal benefit, even as Fred’s new wife becomes entitled to her own spousal benefit.
In cases where there are multiple remarriages and divorces, a divorcee may be eligible to receive multiple ex-spousal benefits, as long as the marriages to the ex-spouses lasted at least 10 years each. In these cases, the divorcee can receive benefits based on whichever ex-spouse’s record provides the biggest benefit.
When to Claim?
A divorcee may or may not be entitled to and eligible for spousal benefits, as described above. An entitled and eligible divorcee must decide when to claim.
For a divorcee who is only entitled to an ex-spouse’s spousal benefit – which occurs when the divorcee didn’t work enough to have his or her own individual retirement benefit – the only decision is whether to claim a benefit as early as age 62, or to wait until Full Retirement Age. The benefit to waiting is that the spousal benefit payments will be larger. The downside is that no benefits will be received during the waiting period, and so the divorcee must have an expectation of living long enough to make up for the years of foregone payments with the larger benefits resulting from delaying the benefit claim.
Example: Mary’s spousal benefit will be $1,500 per month, but only if she waits until her Full Retirement Age of 66. If Mary claims a spousal benefit at age 62, her monthly check will be reduced by 30%, to only $1,050. So Mary must decide whether to start receiving $1,050 now at age 62, or to wait four years to age 66 and receive $1,500. If she decides to wait, she will miss out on roughly $50,400 in payments ($1,050 for 48 months, plus some small inflation increases). Mary will need to live long past age 66 to make up the $50,400 shortfall by receiving an extra $450 per month (plus cost of living adjustments).
This type of “breakeven analysis” – figuring out how many years of larger payments need to be received to make up for the early years when no benefits were received – is important for anyone who has to decide when to begin their benefits, individual or spousal.
Because the reduction in benefits for early claiming is more severe for spousal benefits than for individual retirement benefits, delaying a spousal benefit to Full Retirement Age is slightly more valuable to a divorcee, and the breakeven period is slightly shorter.
For divorcees who are entitled to their own retirement benefit from their work history, and also to an ex-spouse’s spousal benefit, there are more benefits available, but not necessarily more flexibility in claiming.
The so-called “deemed filing rule” states that any time an individual is eligible for both an individual and a spousal benefit, they are deemed to have filed for all available benefits. And because any time an individual files for multiple benefits, they do not receive the cumulative benefits, but only whichever pays the highest amount.
So if the divorcee’s own individual retirement benefit is higher than the ex-spousal benefit, the latter is irrelevant. By the time the divorcee is eligible for the spousal benefit, he or she will already be eligible for the higher individual retirement benefit, and the latter will apply.
There is a special exception to coordinating benefits available to individuals entitled to both individual retirement benefits and spousal benefits, depending on the year in which they were born.
A technique called a Restricted Application for Spousal Benefits, or a “Restricted Application” for short, was eliminated in the 2015 budget; if divorcees were born on or prior to January 1, 1954, they were grandfathered in, however.
The Restricted Application allows a spouse, including a divorcee ex-spouse, to file for any spousal benefits to which he or she is entitled, but only spousal benefits and not individual retirement benefits. This allows the divorcee to receive spousal benefits now, but still earn delayed retirement credits of 8% per year on their own individual retirement benefits not received. In effect, the divorcee is able to enjoy the benefit of delaying individual retirement payments to age 70, while receiving ex-spousal benefits along the way.
Example: Mary was born in 1951. She may choose to file a Restricted Application to receive a spousal benefit on Fred’s record. As a result, she immediately begins to receive her monthly spousal benefit payments. At age 70, Mary’s individual benefit will have earned 8% times 4 years, equal to 32% in delayed retirement credits, and if that individual payment is larger than her ex-spouse’s spousal benefit, she can switch at age 70 to her individual retirement benefit.
The appeal of the Restricted Application strategy should be clear – the divorcee can earn the maximum 32% delayed retirement credit on his or her own retirement benefit, while receiving spousal benefits along the way. This has the effect of significantly reducing the “cost” of waiting to claim an individual benefit, and results in a much shorter “breakeven” period.
A key requirement to file a Restricted Application is that the divorcee must be at least Full Retirement Age. If the divorcee files for benefits early, it will be considered a “deemed filing application” for all benefits, and the opportunity will be lost.
Filing for Benefits Online
Divorcees can file for ex-spousal benefits online via the Social Security Administration’s website, or by visiting a local Social Security Administration office.
If filing online, the SSA will make a follow-up request for documentation, to substantiate eligibility for the ex-spousal benefit, including a birth certificate to prove the divorcee’s age, a marriage license to validate the marriage, and a divorce decree to verify that the divorce lasted at least 10 years and that it was valid and legal.
Divorcees who intend to file a Restricted Application should be careful to request only the spousal benefit, and not individual retirement benefits as well.
With credit to www.financial-planning.com and Michael Kitces at https://kitces.com.