I stumbled upon another nuanced exception to the myriad Social Security rules that affect divorced clients thanks to the astute question of an InvestmentNews reader. Think of this as the Social Security edition of Trivial Pursuit, a game that taxes players' memory and retention of minutiae. This question certainly tested mine.
An adviser from Chicago asked me for help crafting a Social Security claiming strategy for two of her currently single clients who plan to marry each other. The soon-to-be bride is 62 and single. Her future husband is 68 and divorced. Neither of them has claimed Social Security yet.
"If they got married, it would make sense for her to take her own benefits and for him to claim a spousal benefit on her earnings record until he reaches age 70," the adviser wrote.
I agree, assuming the 62-year-old wife is not working. Otherwise, she would be subject to earnings restrictions that could temporarily reduce or even eliminate her benefits, as well as those of her new spouse claiming benefits on her record.
Once they marry, the new husband would be a likely candidate for using a valuable claiming strategy that would allow him to collect half of his new wife's full retirement age benefit while his own retirement benefit continues to grow by 8% per year up until age 70. At 70, he would file for his own maximum retirement benefit, which would be worth 32% more than his full retirement age benefit amount.
Anyone who was born on or before Jan. 1, 1954, is eligible to file a "restricted claim for spousal benefits" once their mate claims Social Security. But the window for using this strategy is closing. The last group of people eligible to use it turn 66 this year, although they can exercise this claiming strategy at any time between their full retirement age and age 70.
At age 68, the soon-to-be groom would be eligible to claim spousal benefits once he and his new wife marries and she claims her benefits. The only rub? Normally, you must be married at least one year to claim benefits as a spouse.
At that point he would be 69 years old and would only be able to claim spousal benefits for one year before switching to his own larger retirement benefit at 70.
The Social Security rules defining eligibility for spousal benefits state that "the claimant must be married for at least one continuous year immediately before the claimant's application is filed."
But there are two exceptions to the one-year-of-marriage duration rule. One allows the natural mother or father of the worker's child to satisfy the requirements to collect benefits as a spouse without being married for at least 12 months (even if the child is not alive at the time).
The other exception is the one cited by the adviser.
"I read that the requirement [for spousal benefits] is met if in the month before marriage, you were entitled to benefits as a spouse or divorced spouse," the adviser wrote in an email. Does that mean that the man could circumvent the normal one-year waiting period if he files for benefits on his ex-wife's earnings record now before he remarries, she asked?
Yes, I said, after consulting with Jim Blair, a former Social Security administrator for 35 years and co-founder of the National Social Security Association certificate and training program for financial advisers.
Mr. Blair confirmed that if the man filed a restricted application for spousal benefits on his ex-wife's earnings record before he remarried, it would eliminate the normal 12-month waiting period of his new marriage.
"First of all, he should look into the possibility of filing a restricted application as an independently entitled divorced spouse," Mr. Blair said. As long as his prior marriage lasted at least 10 years and the couple have been divorced at least two years, the man would be eligible to claim benefits on his ex-wife's earning record as an independently entitled divorced spouse — even if she has not yet claimed Social Security.
This is an advantage that divorced spouses have over married couples. In the case of married couples, one spouse must claim Social Security to trigger a spousal benefit for the other.
By claiming benefits on his ex's earnings record before he remarried, the man could bypass the 12-month waiting period to switch to benefits on his new wife's earnings record.
"Since the ex-spouse benefit will end the month he marries, the new spousal benefit begins that same month," Mr. Blair explained.
Mr. Blair noted that anyone who had claimed auxiliary benefits on someone else's earnings record — whether as a spouse, divorced spouse, widow, widower or surviving divorced spouse — in the month before they remarried, would not have to meet the one-year duration of marriage requirement to collect spousal benefits on their new mate's earnings record.
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