Understanding Social Security rules for divorced spouses

Two financial planners in Tennessee wrote me recently asking to confirm a Social Security claiming strategy that they planned to suggest to one of their female clients who is divorced. Jason Frazier and Nick Sowell of Shoemaker Financial sent me a list of questions to verify their understanding of the Social Security rules for divorced spouses. [Read: The rules on Social Security for divorce] While they got most of the answers right, I was able to deliver a Christmas surprise that made them — and their client — very happy. Here's a summary of our correspondence, which I think is an excellent example of questions that advisers should review with their divorced clients who are nearing retirement age. Feel free to play along with today's installment of Social Security Trivia: Divorce Edition. (More: How one single woman can collect three types of Social Security benefits) The facts: The woman is divorced, almost age 60 and not remarried. She was married to her ex-husband for more than 10 years. Essentially, the ex-wife wants to know the earliest age she can start collecting Social Security benefits on his earnings record and how much it will be. Question 1: Can the woman draw 50% of her ex-husband's full retirement age benefit once she reaches her full retirement age of 66? Answer: Yes, as long as she was married for at least 10 years, is divorced and currently unmarried, she will receive the higher of her own retirement benefit or 50% of her ex-husband's full retirement age benefit if she waits until her full retirement age of 66 to claim Social Security. If she is entitled to a Social Security benefit on her own earnings record, the Social Security Administration will pay her own benefit first. Only if her spousal benefit on her ex-husband's earnings record is higher than her own would SSA top off her benefit to bring the combined total up to 50% of her ex-husband's full retirement age amount. Question 2: If the ex-husband draws his benefits early at age 62, does that affect the benefit amount that she would receive? Just because he draws early should not affect her benefit worth 50% of his full retirement age amount, correct? Answer: Right again. Spousal benefits are worth 50% of the worker's full retirement age benefit if the spouse who is collecting the benefit is at least full retirement age. Even if the worker claims reduced retirement benefits early, the spousal benefit is still based on his full retirement age benefit amount. (More: Advisers can answer divorced clients' Social Security questions, except one) But if the spouse who is collecting the benefit is younger than full retirement age, the spousal benefit amount would be reduced. For example, spousal benefits are worth just 35% of the worker's benefit if the collecting spouse starts benefits at the youngest age of 62 years old. Question 3: Because she is now divorced, the ex-wife cannot restrict her application to spousal benefits and take the 50% benefit from the ex-husband from age 66 to age 70 while deferring her own benefits until age 70? Answer: No. That's where the advisers were wrong and that's my holiday gift to them and their client. If the ex-wife waits until her full retirement age of 66 to claim Social Security benefits, she can restrict her claim to spousal benefits only just as if she were still married. She would collect half of her ex-husband's full retirement age benefit and could switch to her own benefit — worth 132% of her full retirement age amount — at 70 thanks to four years of delayed retirement credits. The bonus credits are worth 8% per year for every year she postpones collecting benefits beyond her full retirement age up to age 70. Mr. Frazier was thrilled with that bit of information. “The fact that the ex-wife can claim a spousal benefit even though she is divorced and then later switch to her own benefit is a great benefit I don't think many people realize is available,” he wrote. Agreed. And now all InvestmentNews readers can wrap up another Social Security claiming strategy for their divorced clients. Don't forget to add a bow. (Questions about Social Security? Find the answers in my ebook.)