Divorce complicates Social Security claiming options

With more than 2,700 rules, Social Security is certainly a challenging topic for many financial advisers who want to help their clients optimize their benefits. But when it comes to dealing with divorced clients and the various rules and exceptions that apply, some advisers simply raise the white flag of surrender and cry help!

No worries. I’m here to translate.

“It always amazes me that I can understand the Social Security claiming strategies you outline in your column and even explain it to clients,” one adviser from North Carolina wrote to me via email recently. “But then certain situations trip me up."

Case in point: The adviser’s client is a divorced woman who turns 65 in May. Born in 1957, her full retirement age is 66 and 6 months. The client’s benefit amount at her full retirement age is a meager $780 per month. Her ex-husband, who's 68, is currently collecting about $3,400 in Social Security retirement benefits.

“My client was told by Social Security that she would be eligible for about $1,700 per month based on half of her ex-husband’s full retirement age benefit amount,” the adviser wrote in an email. “But my question is, does she have to wait until her full retirement age to collect that amount?”

Yes, I replied. “If your divorced client waits until her full retirement age to claim Social Security, she will collect half of her ex’s FRA amount.”

In this case, the divorced spouse’s benefit of $1,700 per month would actually represent a combination of her own Social Security retirement benefit of $780 per month topped off by the excess spousal amount of $920 per month. The excess spousal amount is the difference between her full retirement age amount ($780) and half of her ex-husband’s full retirement age amount ($3,400/2 = $1,700).

The maximum spousal amount is worth half of the worker’s full retirement age benefit amount if the spouse or ex-spouse claims at her full retirement age or later. Unlike retirement benefits, spousal benefits don't continue to grow by 8% per year up age 70.

“Can my client claim her own reduced retirement benefit now and then upgrade to the amount she is entitled to under her ex’s record when she turns 66 and 6 months?” the adviser asked.

No. If the client claims Social Security before her full retirement age, her benefits will be permanently reduced. Because she was born after Jan. 1, 1954, she is “deemed” to file for all available benefits based on her age at the time of claim.

However, “deeming” rules don't apply to survivor benefits. Even if the client claims her own reduced Social Security benefits early, it won't have any impact on her survivor benefits if her ex-husband dies first and she's at least full retirement age at the time.

“Does my client automatically step up to a larger survivor benefit if her ex dies?” the adviser asked.

It depends. If any portion of her Social Security benefit is based on her spousal amount, which it would be in this example, then she'll automatically step up to a larger survivor benefit if her ex-husband dies first. But if an individual is collecting retirement benefits solely on his or her own earnings record, then that individual must apply for survivor benefits when a spouse or ex-spouse dies.

If a divorced spouse remarries, she loses the right to collect spousal benefits on a living ex, unless that subsequent marriage ends through death or divorce. But if she is waits until 60 or later to remarry, she can still collect survivor benefits on her ex — even if she's married to someone else at the time.

Another reader contacted me about some misinformation she received from the Social Security Administration about her right to collect survivor benefits on a deceased ex-spouse, to whom she was married for 13 years.

“I am totally confused about Social Security benefits on my ex-husband who just passed away,” Judy from South Carolina told me in a telephone conversation. “I am currently drawing Social Security survivor benefits on my second husband, and I’ve been told that because I remarried before age 60, I am not eligible to collect survivor benefits on my first ex-husband, whose benefits would be much larger.

In this case, the SSA representative got the rules half right and gave the reader the wrong answer. Although Judy remarried before she turned 60, the second marriage ended when her second husband died. Therefore, she's currently single and eligible to collect survivor benefits on her first ex-husband if they are larger than the survivor benefits she's collecting on her second husband. I told her to contact SSA again and ask to speak to a supervisor if necessary.

[Questions about Social Security rules? Find the answers in Mary Beth Franklin’s ebook at Maximizing Social Security Retirement Benefits]