Social Security for Complex Family Situations
Written By: Ryan Rink, CFP®, EA, ChFC®, CLTC®
Widows
Losing a spouse is hard enough without having to figure out Social Security on top of it. Unfortunately, the decisions made during this time can have a major long-term financial impact, so it’s worth slowing down and thinking through your options.
Typically, survivor benefits can start as early as age 60, but claiming early comes with a permanent reduction. You will want to compare the survivor benefit versus your own. You can claim one benefit early and switch to the other later when it’s larger. For example, you might take your own reduced benefit at age 62 and then switch to the survivor benefit at full retirement age (typically age 67). Or flip it – take the survivor benefit now and let your own benefit grow until age 70, when it will be as large as possible. It’s important to take a deep dive and run the numbers for both options.
Divorced Spouses
We have found that this one surprises many people. If you were married for at least 10 years and have not remarried, you may be able to collect Social Security benefits based on your ex-spouse’s work record. This is still true even if your ex is remarried to someone else.
The divorced spouse benefit can be up to 50% of your ex’s full retirement benefit, and it doesn’t reduce what they receive at all. They don’t even need to know you’re claiming on their record. You just need to be at least 62 and currently unmarried to qualify.
If your ex passes away, you may then be eligible for a survivor benefit of up to 100% of their benefit, provided the marriage lasted 10 years and you meet the other requirements. If your marriage lasted a decade or more, always compare what you would get on your own record versus your ex’s before you make any claiming decisions.
A Significantly Younger Spouse
If there is a 10+ year age gap between spouses, the Social Security planning conversation looks a little different. It’s likely the younger spouse will be in retirement for a long time, which means the size of the benefit they ultimately receive can have a significant impact.
If the higher-earning spouse also happens to be the older spouse, then it typically makes sense to delay claiming Social Security to maximize their benefit, since the surviving spouse keeps the higher of their benefit or the deceased spouse’s benefit. Ideally, this means they would start drawing their benefit at full retirement age or later. Each year you delay past full retirement age adds approximately 8% to your benefit, which can make a big difference. In the meantime, the younger spouse can claim their own benefit earlier to bring in some household income while the older spouse’s benefit keeps growing.
Example 1: Bill is the Older and Higher-Earning Spouse
Bill is 70 and Suzy is 58. Throughout their careers, Bill earned significantly more than Suzy, so his Social Security benefit is much larger. Rather than claiming at age 62, Bill waits until age 70 to maximize his benefit. In the meantime, Suzy claims her own smaller benefit when she becomes eligible, providing some household income while Bill’s benefit continues to grow. If Bill passes away first, Suzy will step up to Bill’s larger benefit for the rest of her life, giving her greater financial security during what could be decades of retirement.
But what if the younger spouse is actually the higher earner? In that case, it may make sense for the younger spouse to delay their own benefit as long as possible, since their larger benefit will eventually become the benefit the survivor receives. The older spouse, meanwhile, could claim their own benefit earlier since it’s the smaller of the two. This keeps income coming in while protecting the long-term survivor benefit for whoever is left.
Example 2: Bill is Older, but Suzy is the Higher Earner
Bill is 68 and Suzy is 56, but Suzy spent her career as a physician and will receive the larger Social Security benefit. Since Bill’s benefit is smaller, he decides to claim it earlier to help provide income during retirement. Suzy delays claiming her own benefit until age 70, allowing it to earn delayed retirement credits and become as large as possible. If Suzy outlives Bill, she will continue receiving her larger benefit. If Bill outlives Suzy, he would be eligible to switch to Suzy’s higher survivor benefit, helping maximize lifetime income for whichever spouse lives longer.
These are a few examples that show the importance of sitting down and running the numbers to determine what makes the most sense for your personal situation.
If any of these situations apply to you or someone you know, please reach out to your Shakespeare Financial Advisor at (262) 814-1600. We are happy to walk through your specific situation and help you put together a strategy that works for your family.