I've been getting a lot of questions from financial advisers lately, asking how they can estimate potential Social Security benefits for divorced clients to plug into their retirement income calculations.
That's a tough one. Advisers can't contact Social Security on their clients' behalf. Instead, they should direct their clients to contact the Social Security Administration about their potential benefits as a divorced spouse, assuming they would be eligible for benefits on their ex-spouse's earnings.
In order to collect Social Security benefits as a divorced spouse, the marriage must have lasted at least 10 years and the client must be at least 62 and unmarried. In addition, the ex-spouse must also be at least 62.
Assuming your client meets the length-of-marriage, age and single-status test, they can collect Social Security benefits as if they were still married. The maximum benefit as a divorced spouse is equal to one-half of the amount the ex-spouse's can collect at full retirement age; less if collected earlier.
And your client may be able to collect spousal benefits even if her ex has not yet collected his — as long as he is old enough to collect and they have been divorced for at least two years.
“A divorced spouse seeking a benefit estimate on a former spouse's record may contact Social Security in person or by telephone to get a general estimate on what he or she may be entitled to,” Social Security spokeswoman Dorothy J. Clark told me in an e-mail.
“However, the divorced spouse must establish a relationship before an estimate may be provided from that record,” Ms. Clark added. Translation: Social Security is not going to give a benefit estimate until the agency verifies the requester's relationship to the worker.
Ms. Clark said each case is unique. In some cases, a person might have to submit a marriage certificate and a divorce decree to prove they are a divorced spouse. In other cases, if the worker is already entitled to benefits and the ex-spouse was previously listed on their record, a marriage certificate and a divorce decree is not needed.
Individuals can claim Social Security retirement benefits as early as age 62, but they will be permanently reduced. And if the client is entitled to both a retirement benefit based on her own earnings and a spousal benefit based on her ex's earnings record, Social Security will normally pay her retirement benefit first, topped off by an amount to bring the combined total up to the spousal benefit amount. But both the retirement benefit and the spousal benefit will be reduced if claimed before full retirement age.
Here's an example. Let's assume a client is entitled to a retirement benefit of $1,000 per month. And let's also assume Social Security says her spousal benefit would be $1,200 per month if she collected at full retirement age.
If she collected benefits as soon as she was eligible at 62, Social Security would pay her retirement benefit first, reduced by 25% for claiming four years early. That comes to $750 ($1,000 x 75%).
But if she is also entitled to a spousal benefit of $1,200 per month — which is 50% of her ex-husband's $2,400 per month benefit at his full retirement age — she would receive just 35% of his benefit or $840 per month if she collected at age 62.
The result would be her combined total of $840 per month, of which $750 would be paid on her own retirement benefit, topped off by $90 per month in spousal benefits.
But if she waited until her full retirement age of 66 to claim benefits, she could exercise a creative claiming strategy that would allow her to restrict her claim to spousal benefits only. That would result in a $1,200 per month spousal benefit at age 66, while her own retirement benefit accrued delayed retirement credits worth 8% per year for every year she postponed collecting them between 66 and 70.
At 70, she could switch to her own retirement benefit worth $1,320 per month — a 32% boost from her full retirement age benefit. Actually, her benefit would be even larger as the intervening cost-of-living adjustment for the benefits she did not collect between ages 66 and 70 would also be applied. Going forward, her $1,320+ per month benefit would serve as a larger base for future cost-of-living adjustments.
And in the event her ex-husband died first, and she was at least full retirement age at the time, she would be entitled to survivor benefits equal to 100% of what he was collecting or was entitled to collect at the time of his death — even if he had remarried.
And as long as she waited until age 60 or later to remarry, she could continue to collect that survivor benefit — assuming it was larger than her own retirement benefit or a spousal benefit based on her current spouse.
(Questions about Social Security? Find the answers in my new e-book.)