“Grey divorce” describes the phenomenon of older couples choosing to divorce after marriages of 20 years or more. Divorce at this late stage can present some unique challenges not faced by those divorcing earlier in life. Specifically, a lower-earning spouse may have very real anxieties around money. One worry I often hear from clients is, “How will I be able to retire securely on my own? I haven’t been able to build up any of my own benefits, and I’m running out of time.”
An often-overlooked resource in planning for a secure post-divorce retirement is Social Security Benefits. It is common knowledge that Social Security provides spousal benefits for currently married workers’ spouses. What many don’t know is that a divorced person can claim those same spousal benefits under certain circumstances.
This is the case if your marriage lasted more than 10 years, and you:
- Are currently unmarried
- Are aged 62 or older
- Have an ex-spouse who is entitled to Social Security retirement benefits, and
- Are entitled to receive benefits based on your own work history that are less than the benefits you would receive based on your ex-spouse’s work history
Case Study: Sally & Thomas
Let’s look at the case of Sally and Thomas. They married in 1984, just after both completed their bachelor’s degrees. Both went to work in their chosen fields and began to accrue Social Security and other benefits. In 1989 their son Thomas Jr. was born, and Sally chose to take a pause from paid work to stay home with him. In the meantime, Thomas’ career took off along with his annual compensation. Sally returned to the workforce in 1995, earning just a little more than when she left in 1989.
Fast forward to 2017. Sally and Thomas realize they are no longer happy together, and they wish to divorce. Sally is gravely concerned about her ability to retire securely, since her future earning potential is limited and her accrued benefits are more modest than those of Thomas.
Naturally, retirement accounts like 401(k)s and IRAs will be considered Community Property subject to division. These assets would cover a portion of Sally’s needs in retirement.
Another resource to consider is Social Security Benefits. By the time Sally and Thomas reach retirement age, Thomas will have been a highly compensated employee for most of his working life. His benefits could be as high as $2,639 a month. Sally, with her more limited work history and lower level of compensation, may only qualify for as little as $900 a month.
In this case, Sally can claim her spousal benefit under her soon-to-be ex-husband’s earning history when each attains age 62, because she:
- Was married to Thomas for more than 10 years
- Remained unmarried
- Has an ex-spouse entitled to Social Security retirement benefits, and
- Earned benefits lower than her potential spousal benefit ($900 a month vs. $1,320)
While Social Security is often not enough to provide for all of an individual’s needs in retirement, the income it provides can be a vital component of a carefully crafted retirement income plan.
What if Sally remarries?
- If Sally finds love with someone new and chooses to marry (regardless of the length of that marriage), she would be able to claim the higher of either:
- Her own earned benefit, or
- The spousal benefit under her new husband’s earning history when she reaches a minimum age of 62
- If Sally’s second marriage ends (by death, annulment, or divorce), she would then again be eligible to claim benefits under Thomas’ earnings history, or those of her second husband (provided that this marriage also lasted at least 10 years, and certain other requirements are satisfied).
What if Thomas remarries?
- Even if Thomas remarries, Sally can still claim her spousal benefit under his earning history regardless of his marital status.
If Sally wants to claim her spousal benefit, does she have to wait on Thomas to file for his own benefits?
- No. As long as she and Thomas have been divorced at least two years, Sally is considered independently entitled to claim benefits. Even if Thomas waits until age 70, it will not stop Sally from claiming when or after she and Thomas both attain age 62.
What if Thomas dies before Sally begins to claim benefits?
- Sally can still make a claim under Thomas’ earning history. Instead of claiming a spousal benefit, Sally would claim a survivor benefit.
I am in the process of divorcing. Are there documents related to Social Security that I should keep in my files?
- It would be wise to keep your own benefits statement and your soon-to-be-ex-spouse’s most recent benefits statement on hand. This will give you some idea of the comparison between the two benefit amounts, and help you decide what strategy to pursue in the future.
- If you file under your ex-spouse’s benefits, the Social Security Administration may ask to see your birth certificate (to validate your age), your marriage certificate (to validate the marriage), and your divorce decree (to validate that the marriage lasted more than 10 years).
I heard about a strategy where I claim my spousal benefit while I let my own benefit grow. How does that work?
- This option is open only to those born before January 2, 1954. If you were born before January 2, 1954, you have the option to begin claiming your spousal benefit at your age 62. In the meantime, your own benefit can accrue delayed retirement credits. That equates to an 8% increase in your benefit amount for each year you wait beyond your Full Retirement Age (up to age 70). In some cases, you may be able to grow your own benefit to a level that exceeds your existing spousal benefit.
I’m confused about how to design a retirement income plan; what should I do?
- Seek the advice and counsel of a financial professional you trust. If you don’t currently have a Financial Advisor or similar professional, ask for some referrals and interview at least two candidates before making a decision. Because not every advisor understands the divorce process, you may want to seek an advisor who specializes in working with divorced clients, like a Certified Divorce Financial Analyst™ (CDFA®).
Where can I find more information about Social Security benefits for divorced people?
The Social Security Administration provides a good overview of benefit options on their website at https://www.ssa.gov/planners/retire/divspouse.html.