I always say that when it comes to claiming Social Security benefits, timing is everything.
And when an older couple is considering a divorce, it can lead to some difficult choices.
Jessica Ness, a certified financial planner with Glassman Wealth Services, e-mailed me this week with a question about her clients, an older couple in the midst of negotiating a divorce. The husband is 65, and the wife is 64.
"Neither spouse is collecting benefits, and one wants to file a restricted claim for spousal benefits only," Ms. Ness wrote. "My client wants to know if it makes sense to delay the divorce date until after her 66th birthday and after she starts to collect spousal benefits."
That is a great question. But before I answer it, let me review the basic rules for receiving Social Security benefits as an ex-spouse.
An individual can receive benefits as a divorced spouse on a former spouse's Social Security record if he or she was married to the former spouse for at least 10 years, is at least age 62, is unmarried, and isn't entitled to a higher benefit on his or her own record.
In addition, just like a married couple, divorced spouses who wait until at least their full retirement age to claim Social Security benefits can file a restricted claim for spousal benefits.
That strategy would allow them to collect benefits equal to one-half of the ex-spouse's full retirement age benefit while their own retirement benefits accrued delayed retirement credits worth 8% per year between 66 and 70.
At 70, the exes could switch to their own retirement benefit worth 132% of their full retirement age amount. The benefit amount would actually be even larger as intervening cost-of-living adjustments would be applied.
Divorced spouses have an added benefit when using this strategy.
Unlike married couples who must wait for one spouse to file for benefits or to file and suspend benefits in order to trigger spousal benefits, a divorced spouse can file a restricted claim for spousal benefits even if the ex-spouse hasn't yet claimed benefits. The ex-spouse merely needs to be eligible to claim benefits.
But there is the rub.
If a former spouse is eligible for a Social Security retirement benefit but hasn't yet applied for it the divorced spouse can receive a benefit on his or her ex's earnings record only after being divorced for at least two years.
Ms. Ness noted that if the couple remained married until the wife turned 66, she could file a restricted claim for spousal benefits only and later divorce.
"How would her spousal benefits be impacted if they got divorced shortly after she started collecting spousal benefits?" she asked.
Once the wife began to collect spousal benefits, the benefits would continue after the divorce, and she could switch to her own delayed retirement benefits at 70.
Talk about being caught between a rock and a hard place.
The couple can still divorce as planned and either collect reduced Social Security benefits now or wait until 66 to claim their full benefits, whether they are still married or already divorced. But if the wife want to file a restricted claim for spousal benefits only, they will either have to delay the divorce proceedings so that she could file a restricted claim at 66 before they divorce or wait until two years after the divorce decree takes effect to engage in this claiming strategy.
Ms. Ness was grateful for the information but said she isn't looking forward to delivering this less-than-ideal news to her client.