Why Your Marital Status Should Impact How You Think About Social Security
If you’re reading here, there is a very good chance you’ve at least heard a little bit about social security. You likely know the basic premise of what social security is. The Social Security Act was signed into law on August 14, 1935 by President Roosevelt. While there were many different pieces of the act, one of the provisions created these insurance type payments to workers in retirement. In order to qualify for social security, you must have enough work credits which are earned through years of working and paying into social security. There are a few exceptions to this that I will discuss shortly. Full retirement age begins at 65 and, depending on year of birth, goes up from there. For example, I was born in 1990 and my full retirement age is 67. This is the age at which you can receive your full social security benefit amount. At age 62, you have the option to take social security early at a reduced amount, only 70% of your full benefit. You also have the option to defer social security until age 70 to receive 132% of your full benefit. Now, your social security benefit amounts and decisions are going to depend a surprising amount on your marital status. That’s what I want to talk about today.
1. Married
If you are married, there are a few things you should take into consideration when looking at your social security benefits. First, a non-working spouse is still entitled to social security. If one of the two is eligible for social security, they have earned a benefit for both themselves and their spouse. The non-working spouse is entitled to a benefit equaling 50% of whatever the working spouse’s benefit amount is. This is also true if both spouses work but one spouse made considerably less than the other. For example, if a husband and wife are both eligible to receive benefits, and the wife’s projected benefit was $2,200/month while the husband’s was only $600/month (maybe he only worked parttime or earned less), the husband would actually be entitled to a benefit of $1,100 rather than his $600.
2. Divorced
If you are divorced, you have some options when it comes to taking social security. A divorced spouse has the same claiming options as a married spouse. They are still entitled to 50% of their ex-spouse’s benefit. Now, there are some stipulations. In order to claim based on your ex-spouse’s benefits, you have to have been married for at least 10 years, you must reach age 62 and you must not be remarried. Your personal benefits are not affected by an ex-spouse claiming under you.
3. Widowed
There is definitely some strategic planning that should go into decided when to take social security. When one spouse passes away, the living spouse continues to receive ONLY the higher of the two benefit amounts. If husband received $2,000 and wife received $1,600 and husband passed away, wife continues to receive only $2,000. This is important to keep in mind while deciding when to begin taking. We will often times see, with couples where husband and wife have similar benefit amounts, one spouse claiming at full retirement age (or maybe even before full retirement age) and the other spouse deferring until age 70 to allow their benefit to grow. This way, when one spouse passes away, the living spouse continues to receive a higher benefit than they would if both spouses filed at or before full retirement age.
4. Dependents
Obviously, this one has less to do with marital status and more to do with family status. Dependent children are eligible for social security benefits as survivors of deceased workers or dependents of living parents receiving social security. Children must be unmarried, under the age of 18 or over the age of 18 with a disability, and are eligible for up to 75% of their parent’s benefit. Dependent adult parents are eligible for up to 82.5% of their deceased child’s benefit.
Marital and family status can greatly affect one’s social security benefits and should be taken into consideration when making social security decisions. Often times, the social security office is very helpful in guiding appropriate decisions and educating on options, but it never hurts to walk in with a basic understanding of what you and your family are eligible for. Chat with your financial advisor, they should have the tools available to help run through different scenarios and optimize your social security benefits.
Any opinions are those of Molly VanBinsbergen and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.
