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Coordinating Social Security Benefits in Matters of Divorce and Remarriage

divorce throws a curve

Photo courtesy of Bec Brown via Unsplash.com.

Social Security has a way of making decisions very difficult. In the simplest of circumstances, the choices can be tough. But what if you’re in a tough spot, such as if you’re divorced and now involved with someone else, considering remarriage? Social Security benefits in matters of divorce can become very complicated.

The Decisions

Social Security benefits can be taken as early as age 62. You can also delay taking benefits to any age after you’ve reached age 62. Delaying to your full retirement age will result in a larger benefit, but of course you will have to go without benefits for a few years in order to receive that larger benefit. Delaying further to age 70 will result in a maximized benefit for you, but again, you have to figure out how to get by without the monthly benefits for a few years while waiting for the maximum benefit to accrue.

When you complicate matters with a Spousal Benefit, the decision becomes even more difficult. When you’re eligible for a Spousal Benefit, you could possibly increase your age 62 benefit by taking all available benefits (your own and the Spousal) at that age, although they’ll be reduced from the maximum amounts.  Or, if timing is right, you could take your own benefit early and then add the Spousal Benefit later.

Another choice is to delay all benefits to your full retirement age, and then take the Spousal Benefit alone. By doing this, you could delay your own benefit up to age 70 and maximize it.

Of course, all of these options are only available if your spouse is in a position to enable you to receive the Spousal Benefit at these various ages. If your spouse is younger or the same age, early Spousal Benefits may not be available to you since your spouse must have filed for benefits to make you eligible for Spousal Benefits.

Complicating matters further, what if you’re divorced and are now considering a remarriage? This brings up a set of scenarios that you never wanted to have to face: You have this new person in your life, but it might be financially advantageous for you to remain unmarried. This is due to the fact that if you remarry, any available Spousal Benefit based on your ex-spouse’s record is no longer available to you.

On the other hand, you want to provide for your new love. If you’re not married, you could not provide future Spousal Benefits and/or Survivor Benefits to your non-spouse.

The Divorcee Contemplating Remarriage

This set of circumstances was recently related to me: Carol, age 62, was in a relationship with Ted and they were considering marriage. She had divorced Bob several years ago after a twenty-plus-year marriage. Bob, ten years her senior, has a Social Security record that would provide a significant Spousal Benefit for Carol. The Spousal Benefit is to be approximately $12,000 per year if Carol takes it separately at her age 66 (Full Retirement Age) via a restricted application. This had been Carol’s plan all along, because her own benefit at her age 70 would be significantly larger, roughly $31,680 per year.

Ted has a much smaller Social Security benefit coming to him, estimated at around $6,000 per year in total. He’s also eight years younger than Carol, so the timing wouldn’t work out for her to receive a Spousal Benefit based on Ted’s record at Carol’s age 66. Plus, a Spousal Benefit based on Ted’s record would only amount to $3,000 per year.

If Carol and Ted marry, Carol would not be eligible for the Spousal Benefit from Bob’s record. On the other hand, if Carol is not married to Ted when she passes away, Ted would not receive a Survivor Benefit based on Carol’s record.

The question becomes: Should Carol and Ted marry now, or delay marrying until a later date? And if they delay, how can Carol make sure that Ted will have adequate resources if Carol should pass away before they marry?

The Recommendation

My recommendation to Carol is to consider the value of the Spousal Benefit versus her desire to provide for Ted. The value of the potential Spousal Benefit from Bob’s record is relatively easy to quantify, at approximately $48,000 in today’s dollars. The value of the future Survivor Benefit for Ted is also relatively easy to quantify as well, at something like $500,000* in today’s dollars.

One suggestion to Carol was to delay the marriage until she reaches age 70. At the same time, she can purchase a 10-year level term life insurance policy with a face value of $500,000. The estimated cost of this policy is approximately $1,300 per year**. This way Carol can receive the Spousal Benefit based on Bob’s record when she reaches age 66 and continue to receive it for four years until she reaches age 70. Then she and Ted can be married and her benefits will be unaffected by the marriage.

What this does is to provide Ted with a future income resource (via the insurance policy) in the event that Carol were to pass away before they marry.  One year after they marry, Ted would be eligible for a Spousal Benefit based on Carol’s record, and after her death (if Carol predeceases) Ted would be eligible for a Survivor Benefit, so the life insurance policy is no longer needed.

In addition, if Bob passes away before Carol reaches age 70, she would be eligible for the Survivor Benefit based on his record even if she does remarry (since she’s over age 60), so Carol and Ted could get married at any time after Bob dies.

This is one way to arrange things, but I don’t claim to have all the answers. Perhaps you have other ideas to suggest – if so, please leave them in the comment section below and we’ll discuss. Thanks!

Notes:

* I calculated the value of the Survivor Benefit to Ted by discounting 30 years’ worth of Carol’s maximum benefit of $31,680 by 5%. The result was a little less than $500,000.

** I received an estimated quote for $500,000 of ten-year term insurance for a 62-year-old woman from term4sale.com.

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