Social Security-claiming strategies for divorced spouses can be particularly confusing as evidenced by the slew of questions I receive from financial planners trying to give their clients the best advice.
As you know, a divorced spouse is entitled to claim benefits on an ex-spouse’s earnings record as long as the marriage lasted at least 10 years and the individual who is claiming benefits is not currently married.
In addition, ex-spouses have an option not available to married couples: They can claim benefits on a former spouse’s earnings record even if that former spouse has not yet retired. The only requirement is that both ex-spouses must be at least 62.
Married couples can’t do that. They either have to wait for one spouse to claim benefits or to file and suspend at full retirement age to trigger benefits for the other married spouse.
To take advantage of the option of claiming benefits on a former spouse who has not yet retired, there is an added requirement: The couple must be divorced at least two years.
Otherwise, the rules governing married couples and divorced spouses are the same: Individuals can collect reduced retirement or spousal benefits as early as 62. But if they want to restrict their claim to spousal benefits to collect half of their spouse’s benefit now and defer their own retirement benefit until later, they must wait until full retirement age.
With that information as a backdrop, let me share an e-mail I received recently from an adviser in California.
The adviser’s clients, who were married for 19 years, are now divorced. The husband, now 66, began collecting Social Security benefits early at 62. The ex-wife is now 55.
“Can she draw on the ex-husband’s Social Security benefits at 62 and defer her own until 70?” the adviser asked. “And if she can draw on his benefit, is it worth half of his reduced benefit or half of his full age of retirement benefit?”
Those are good questions.
When the ex-wife turns 62, she can claim reduced benefits. But when claiming benefits before full retirement age, Social Security will pay the largest benefits to which she is entitled, whether it is on her own work record or as a spouse. She can’t choose which benefit to receive.
And because she is claiming before her full retirement age, which in her case is 66 years and 8 months, her retirement benefits will be reduced by 28.33% at 62. Or if her benefit is larger as a spouse than on her own earnings record, her spousal benefit will be worth 33.33% at 62, compared with collecting at her full retirement age.
Even though the ex-husband collected a reduced retirement benefit early, spousal benefits are based on half of his full retirement age benefit if they claimed at full retirement age; less if collected earlier.
So, to recap: The ex-wife can draw reduced Social Security benefits as early as 62, but if she wants to restrict her claim to spousal benefits, she has to wait until her full retirement age of 66 and 8 months. If she claims before full retirement age, she can’t choose which benefit to collect and she forfeits the chance to earn delayed retirement credits worth 8% for each year between her full retirement age and 70.