I met a woman named Linda the other day. While we were chatting, she mentioned that she quit her full time job because she didn't need the money, thanks to stashing away nearly half of her paycheck throughout her career. She owns her condo outright and now, in her late 50s, works just one day a week.
I congratulated her on her financial independence and told her how I admire single women who take control of their own destiny. As an aside, she mentioned that she had been married once but said they divorced long ago.
How long had she been married? I asked. Longer than 10 years?
Yes, she replied.
Did she know that she is entitled to Social Security benefits as an ex-spouse whose marriage had lasted more than 10 years? I asked.
Spousal benefits are worth up to half of an ex-spouse's benefit amount at full retirement age. And she could collect Social Security benefits on his earnings record (if they were larger than her own), even if he hadn't claimed his yet, as long as they had been divorced for at least two years. Of course, they both must be at least 62 years old.
But if she waited until her full retirement age of 66 to claim Social Security, I told her she could file a restricted claim to spousal benefits only and collect half of his benefits, while allowing her own benefits to accrue delayed retirement credits worth 8% per year up to age 70.
"No, I never knew that," she said. "But it doesn't matter. He died a few years ago."
Well, in that case, I told her, forget the spousal benefits worth 50% of her ex's Social Security benefits. She could collect survivor benefits worth 100% of what he was entitled to when he died.
No, she replied. She had never heard that either. But she was sure it wouldn't apply to her since he had remarried and had a second family.
Wrong, I said. As long as they had been married for at least 10 years she could collect survivor benefits on her ex-spouse as early as age 60, even if her ex had remarried. His widow could also collect full survivor benefits. The wife and the ex-wife didn't have to share them.
Of course, if Linda collected Social Security survivor benefits early at age 60, they would be reduced – worth just 71.5% of what her ex-husband was eligible for at the time of his death rather than 100% if she waited until her full retirement age of 66. But in her case, collecting reduced benefits early — benefits she had no idea that she was entitled to – might make sense since she is working only one day a week and probably won't earn more than the annual earnings cap.
Anyone who collects Social Security benefits before their full retirement age and continues to work loses $1 in benefits for every $2 they earn over $15,480 in 2014. A more generous earnings cap applies in the year you reach full retirement age during the months leading up to your birthday and disappears once you reach full retirement age. The current full retirement age is 66 for people who were born from 1943 through 1954 and higher for those born later.
At 70, she could switch to her own retirement benefits, which would be worth 132% of her full retirement age benefits.
It was just a chance meeting and a casual conversation that could boost one woman's retirement income by tens of thousands of dollars a year. I wonder how many of your current or future clients don't know what they're missing.