Chris Stein, CFP®
Divorced Spouse Benefit vs Your Own Retirement Benefit
We had someone write in recently asking us to confirm her plan for filing benefits. She is divorced, but not remarried and currently age 59. Her situation is this:
She qualifies for a divorced spouse benefit based on her ex-spouses work record due to the fact that she was married at least 10 years. Her spousal benefit is estimated to be $1,100 per month at her full retirement age, which is 66yrs 4 months due to her being born in 1956. Her ex-spouse is older than she is.
She also qualifies for a retirement benefit based on her own work record that is estimated to be $925 per month at her full retirement age, or about $1,205 per month if she waits to claim at age 70 where her monthly benefit is the largest.
Having researched the benefits of waiting to claim if possible she wants to maximize her monthly benefit, which she points out is the $1,205 per month amount from her own work record if she waits to claim at 70. But she goes on to explain her plan is to instead file for her spousal benefit because of the following math:
If she waits to claim to 70 she will give up 44 months of the spousal benefit ($1,100 per month) for a total of 1100 x 44 = $48,400.
When she reaches 70 she will receive $105 per month more than she would have from her spousal benefit ($1,205 – $1,100 = $105)
So her math shows her that it will take 461 months to recoup the $48,400 in benefits she gave up ($48,400/$105 = 460.95), which is over 38 years and it makes no sense in her estimation to make that trade off.
So based on the above logic she is asking if her plan to file for a spousal benefit at age 66 and 4 months is her best bet and forget using her own benefit. The answer is yes with an added recommendation. She is forgetting that she can switch benefits along the way IF she handles this properly when filing for benefits. She can actually file for her spousal benefit at age 66 and 4 months, then SWITCH to her own benefit at age 70 that has had the benefit of earning the delayed retirement credits. So she can have her cake and eat it, too. She can take her spousal benefit from 66 and 4 months to age 70 then start to take her higher retirement benefit. To accomplish this she will need to heed the following:
She MUST wait to her full retirement age to turn on the spousal benefit and at that time she has to request that Social Security “restrict” her claim to only the spousal benefit and to leave her own benefit alone, unclaimed. She is only allowed to restrict her application like this once reaching her full retirement age. That is why this will not work if she files earlier. If she files earlier she will be “deemed” to have filed for her own benefit first, thus preventing it from growing to $1,205 at age 70.
As she approaches her age 70 she will need to contact SS again (by that time maybe she can do it online) and notify them that she wishes to switch to her own benefit the month she reaches age 70 BUT NOT BEFORE. She does not want to miss out on any delayed retirement credits by letting them switch her early. There is a chance SS will automatically switch her at 70, but it is best to make things clear to them yourself.
By following these steps she should be able to receive her spousal benefit while waiting for her own benefit to grow to its largest amount.
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