Cashing in on Your Successful (Ex)Spouse

According to baby boomer Web site ThirdAge, “…in 2008, one-fourth of new divorces took place in people married at least 20 years. The same year, almost 51 percent of all divorced (but not remarried) people were in the baby boom age cohort…”

As those same boomers march steadily toward retirement, understanding one’s options under Social Security becomes both more complex and, potentially more lucrative--especially if one ex-spouse earned more than the other.

Here’s the key: You have a right to collect a Social Security benefit based either: a) on your own earnings record, or b) your ex-spouse’s earnings record. You’ll receive whatever amount is higher. There are just a few rules to be aware of. You must:

1. Have been married at least 10 years2. Be divorced at least two years3. Be at least age 62 (age 50 if you are disabled)4. Not re-marry5. Have an ex-spouse who qualifies for Social Security benefits (i.e. is at least age 62.) Note that s/he need not have started collecting benefits..

If you file for Social Security before your “full” retirement age (now at least age 66), Social Security assumes you are applying based on your own work history. On your application be sure to complete the section that tells Social Security that you are also claiming as an ex-spouse.

Remember you’re not entitled to a benefit based on your work history plus your spouse’s work history. Whether you were a stay-at-home spouse or toiled as a janitor for minimum wages, the maximum you will receive is the “spousal benefit” which is 50% of what your ex-spouse is entitled to at his/her full retirement age. That’s why if you put time in the paid workforce at all, there’s a good chance you’ll get more based on your own earnings record. Still, it never hurts to ask.

If it turns out that the spousal benefit is larger, you’ll receive that, but some of the money making up your monthly check will be attributed to your own contributions. According to a Social Security spokesperson, “We will pay the amount [based on your] record first. But if the benefit [you are entitled to based on your ex-spouse’s] record is a higher amount, [you] will get…that higher amount [reduced for age].”(1)

Admittedly, understanding Social Security’s bookkeeping methods can be a bit like jumping into advanced calculus right after learning your multiplication tables. The best way to explain this is that under the above circumstances, your check would be a combination of the points you earned yourself, plus additional money based on your spouse’s record. In either case, it brings you to the same point: a maximum of 50% of the amount your spouse is entitled to at FRA.

However, if you start receiving benefits before your full retirement age, you won’t get this much. For an idea of how much of a reduction you’d face, visit the Social Security Web site.

Now that you know the rules, you can play the game. The preceding scenario practically screams the question, “What if I apply for a spousal benefit after I reach my full retirement age?” Now you’re getting creative!

Let’s say Jack and Jill were married for 25 years.  She’s 63 and still working and he’s reached his full retirement age. According to Social Security Administration, if the ex-spouse “has reach his FRA and is eligible for a spouse’s benefit, he now has a choice.  He can choose to receive only the divorced spouse’s benefits now and delay receiving his retirement benefits until a later date. [If this is the case], a higher benefit may be received… based on the effect of delayed retirement credits.”

In other words, Jack collects a spousal benefit equal to 50% of Jill’s FRA amount (2) for four years. When he turns 70, he applies for Social Security benefits on his own record. Not only does he receive 100% of this amount, but  as I wrote last week , to thank him for waiting to start benefits based on his own work history, Social Security boosts Jack’s monthly check by 50% compared to what he would have received at age 66.

P.S. No matter how many ex-spouses are collecting benefits based on your earnings history, this has no effect on the size of the Social Security check you or your current spouse are entitled to.

1. If you re-marry, you generally lose the ability to collect benefits based on your ex-spouse’s work record.

2. A.k.a. Jill’s Primary Insurance Amount, or PIA. (I’d have used these, but there are just too many darn initials in Social Securityland.)

Ms. Buckner is a Retirement and Financial Planning Specialist at Franklin Templeton Investments. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content.