How you can collect on your ex

There's no doubt that there's an enormous appetite for information about Social Security claiming strategies and I'm happy to shed some light on these often confusing issues. Russell, a financial adviser in Pennsylvania, has some questions about claiming strategies for divorced spouses and notes there is very little information readily available for this large demographic. His question was triggered by an earlier column that I wrote about married couples. In that column, I explained how one spouse can file and suspend his benefits at age 66, allowing his wife to collect spousal benefits on his earnings record. His own benefit would continue to accrue delayed retirement credits worth 8% per year until age 70. At 70, he could collect his maximum benefit. Although his wife can collect retirement benefits as early as 62, if she earned benefits on her own work history, she may be better off waiting until 66 when she could “restrict her claim to spousal benefits only”. That means she could collect half of her husband's full benefit (not including delayed retirement credits) and allow her own benefits to continue to grow by 8% per year until age 70. At 70, she, too, would switch to her maximum benefit. In this scenario for married couples, one spouse must file for benefits — or file and suspend benefits — in order to trigger spousal benefits for the other mate. They each can't file for spousal benefits only.

Special rules for divorced spouses

Russell wonders how the rules apply to divorced spouses. Is it possible for each divorced spouse to wait until 66 and then restrict his or her claim to spousal benefits only? Yes. The claiming rules are a bit different for divorced spouses. They don't have to coordinate their claiming strategies — or even need to communicate with one another. They can collect benefits independently as long as the ex-spouse is eligible for benefits, even if he or she has not yet filed for benefits. First, let's review the basic rules. In order to collect on your ex, you must have been married for at least 10 years, divorced for at least two years and not be currently married. As a divorced spouse, you can collect reduced benefits as early as age 62, but you will still be subject to the earnings cap if you continue to work while collecting benefits. (That's generally not a good idea). In 2012, you lose $1 in Social Security benefits for every $2 you earn over this year's limit of $14.640. But if you wait until 66, you can “restrict your claim to spousal benefits only”. That means you can collect half of your ex's full benefit that he or she is entitled to at normal retirement age (not including delayed retirement credits) and delay collecting your own until 70 when they will be worth the maximum amount. Each of the divorced spouses can simultaneously claim spousal benefits based on their ex's earnings record.

Do the math

But you have to crunch your numbers to see if this strategy makes sense. Let's say both ex-spouses have similar earnings records and each would be entitled to $2,000 per month at their normal retirement age of 66. In that case, it might make sense to restrict your claim to spousal benefits only. You could collect $1,000 per month for four years and at age 70 switch to your own larger benefit that would be worth $2,640 per month (including four years of delayed retirement credits worth 8% per year). But if your own benefit is rather small — perhaps $500 per month based on intermittent or low-paying jobs throughout your career — this might not be the best option. Let's say your higher-paid ex-spouse's benefit is worth $2,000 per month at age 66 compared to your meager $500 benefit. You'd be better off filing an unrestricted claim. You would receive $1,000 per month — half of his $2,000 monthly benefit — which is more than your own benefit would ever be worth, Even after four years of accruing delayed retirement credits, your own benefit would only be worth $660 per month at age 70 if you restricted your claim to spousal benefits only and earned delayed retirement credits on your own record. So that doesn't make sense. In fact, with such a disparity in benefits, the lower-earning spouse may be better off claiming reduced benefits early at 62, assuming she is no longer working or not earning more than the earnings cap. That allows her to collect benefits as early as possible if she needs the money. Using the above example, the 50% spousal benefit worth $1,000 at age 66 would be reduced to 30% or $750 per month if you collected at age 62. The reason collecting a reduced benefit early may make sense is that she will still be eligible for a much larger survivor benefit if her ex-spouse dies first. Assuming she is at least normal retirement age at the time, she would receive an unreduced survivor benefit worth 100% of what he received during his lifetime — including any delayed retirement credits. And, she can collect survivor benefits even if her ex has remarried. It will not affect the survivor benefits of his current wife.