How Marriage and Divorce Affect Your Social Security Payments
Larry Kotlikoff explains the Social Secuirty benefits available to married and divorced couples. Photo courtesy of Mike Kemp/Getty Images.
Larry Kotlikoff’s Social Security original 34 “secrets”, his additional secrets, his Social Security “mistakes” and his Social Security gotchas have prompted so many of you to write in that we now feature “Ask Larry” every Monday. We are determined to continue it until the queries stop or we run through the particular problems of all 78 million Baby Boomers, whichever comes first. Kotlikoff’s state-of-the-art retirement software is available here, for free, in its “basic” version
Jim T. — Carlsbad, Calif: I am unmarried but wish to leave my Social Security benefits to my partner. As man and wife, how long must we be married?
Larry Kotlikoff: If you are married for just nine months, your new spouse can qualify for survivor benefits. And you only need to be married for one year to permit your new spouse to qualify for spousal benefits. But if you get divorced before 10 years, you’ll qualify for neither spousal nor survivor benefits. If you get divorced after 10 years, you’ll qualify for both.
As I’ve pointed out in the past (see the answer to Nicholas’ question last week), the system provides a better deal to divorcées who have stuck it out in their marriage for 10 years or more. The system permits both divorced spouses (assuming they don’t remarry) to collect full spousal benefits after reaching full retirement age, while postponing the collection of their own retirement benefit until age 70.
Richard — Stoneham, Mass.: I was recently informed by Social Security that my wife could not receive half my Social Security because she worked a state job for 24 years and therefore does not qualify because of the windfall act. Is this true?
Larry Kotlikoff: Yes, the Government Pension Offset provision will reduce, if not wipe out, the spousal and survivor benefits that would otherwise be available to your wife. The reduction equals two-thirds of her state pension.
There are a couple of exceptions, but they surely don’t apply to your case. If your wife can delay her own pension and have it grow while she delays it, she can then take her Social Security benefits (spousal and retirement), without getting zapped, until she starts her state pension.
If your wife’s state pension is large enough to fully wipe out her spousal or survivor benefit (after you pass away) but is not inflation indexed, she may, at some point in the future, be able to collect a partial spousal or survivor benefit. That’s because two-thirds of a fixed nominal benefit will, over time, become smaller and smaller, relative to Social Security benefits, which rise through time to keep pace with inflation.
Dolores Howard — Greenfield, Tenn.: I am 57 and thinking about an early retirement. My first husband is deceased. Can I draw benefits from him even though I have remarried? By taking early retirement due to poor health, can I do this at age 57?
Larry Kotlikoff: Since you remarried before age 60, you can’t collect survivor benefits on your deceased first husband’s earnings record. Were you to get divorced, you could. The earliest you can collect your own retirement benefit is 62. That’s also the earliest you can collect your spousal benefit on your current husband’s earnings record. But to collect a spousal benefit, he has to be over 62.
Your total check if you do take your own retirement benefit early will be the sum of your reduced retirement benefit (reduced because you are taking it early) and your reduced excess spousal benefit, which is equal to half your spouse’s full retirement benefit less 100 percent of your full retirement benefit. If the excess spousal benefit is negative, it’s set to zero.
This is one of Social Security’s miserable gotchas: You take your own retirement benefit and expect to get a spousal benefit, but it doesn’t happen. Furthermore, as soon as you file for your retirement benefit, you’ll be forced to take your spousal benefit (assuming your spouse is at least 62).
One last point: if you are forced to stop working due to health reasons, you may qualify for disability benefits. As I wrote in a previous column, taking disability benefits does not preclude you from withdrawing them prior to their converting at full retirement age to retirement benefits. By withdrawing them now, you can collect a full spousal benefit starting at 66 and then wait until 70 to start collecting your own retirement benefit.
Shirley — San Jose, Calif.: I am 62 and my husband is 63. He has a pension that we are receiving now from his former employer. My employer is offering me a retirement package that would act as a bridge to age 65, so I can collect my pension now. (I also get full medical and vision for me and my husband for life.) The severance package also includes 54 weeks of pay (two weeks for every year I have been with them). My husband is still working and wants to retire at age 64 or 65. Can he apply and suspend Social Security at age 63 so I can collect on his benefits and then wait to collect on mine when I’m 70? Also in the last 35 years for Social Security taxes, I have six years with no income as I stayed home with the children. Will that affect how much I get at age 70?
Larry Kotlikoff: Your husband must reach full retirement age before he can file and suspend. And you can’t opt to collect only your spousal benefit until you reach full retirement age. So if he files and suspends at 66 (his full retirement age), and you apply for a spousal benefit at 65, you’ll also be forced to take your retirement benefit due to Social Security’s “deeming” provision.
And, once you are taking your own retirement benefit, your spousal benefit will be calculated not as your full spousal benefit, which would be equal to half of your husband’s full retirement benefit, but as your excess spousal benefit (or your full spousal benefit less your full retirement benefit). Your excess spousal benefit could well be negative, in which case it’s set to zero.
So, by having him file and suspend as soon as he can so that you can seize the opportunity to collect your spousal benefit immediately, you will disadvantage yourself terribly. So let’s not do that.
Instead, let’s have you wait until 66 to collect just your full spousal benefit and then hold off until 70 to collect your own retirement benefit. Or, when you are 65, you can file for your retirement benefit and permit your husband to collect his full spousal benefit off of your earnings record. When you are 66, you can suspend your retirement benefit. Your husband can then keep collecting a full spousal benefit until 70, when he can collect his retirement benefit. And you can restart your retirement benefit at 70. Depending on your earnings records, this may be the optimal thing to do. Only very smart software can say which option is best.
Michael Zappei — New York, N.Y.: I am 72 and have been collecting Social Security since shortly after I turned 62. My partner is 62 and plans on working until full retirement. His earnings are much higher than mine were. We are getting married now that it is possible, so what are our options regarding spousal and survivor benefits should he die before me?
Larry Kotlikoff: Mazel Tov from Paul and me. Please get married and live in a state that has legalized same-sex marriage so that you don’t run into some craziness about Social Security not recognizing your marriage. After the recent Supreme Court decision striking down a key section of the Defense of Marriage Act, I wrote how same-sex couples can take advantage of the same perks as other married couples. But in a nutshell, you can receive spousal benefits (after you have been married one year) and survivor benefits (after you have been married nine months) off your partner’s work record and he can receive spousal benefits off of yours, although you can’t both get spousal benefits at the same time.
Now what’s the best collection strategy for you two? You can collect an excess spousal benefit as soon as your partner files for a retirement benefit, which he can do now. But if he does this, he’ll be forced to take an early retirement benefit which is the full retirement benefit hit by a reduction factor. He can, however, collect until full retirement age, suspend his retirement benefit at that point, and then restart his retirement benefit at 70.
But this may not be the optimal strategy to maximize your joint lifetime benefits. It may be best for your partner to wait until full retirement age and collect a full spousal benefit based on your earnings record and then take his own retirement benefit at 70.
What’s best depends on your maximum ages of life, the rate at which you choose to discount future benefits (i.e., how you value your Social Security benefits coming in future years), and your past covered earnings histories. Consider using commercially available software to weigh these options.
Ed — Mayfield, N.Y.: I retired at 62 but won’t collect Social Security until 65 or 66. Will the four years I’m not working between 62 and 66 significantly affect my Social Security benefits?
Larry Kotlikoff: My answer is a firm maybe. If you were to earn enough between now and 66 to replace some of what would otherwise be your highest 35 years of past Social Security-covered earnings, you’d get higher benefits for the rest of your days thanks to Social Security’s recomputation of benefits. Indeed, if you were to earn above the covered ceiling, you’d automatically be making this replacement.
But if you can’t go back to work at this point, the question is rather moot. Your benefits will be what they will be. The only way you can make them larger is to wait to collect them or, if you are married, come up with a strategy for your and your spouse that makes your joint benefits over your lifetime as large as possible.
This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions