By Cristin Rigg, CFP®, CDFA™

 

Anyone who has been through a divorce knows the life-changing toll it takes on a person, emotionally and financially.

Assets are divided in half and expenses double as one household becomes two. The higher wage earner shares income via spousal and child support, while the lower wage earner must take a crash course in super-budgeting just to make ends meet. Often, retirement planning is put on the back burner as the more pressing challenges of day-to-day survival emerge.

But at some point, a divorced-spouse will need to apply for Social Security benefits, and knowing the rules for maximizing benefits can often have a lasting impact on one’s cash flow and retirement plan.

First, a divorced-spouse is entitled to one-half of their ex-spouse’s full retirement age benefit, as long as they were married for 10 or more years, are currently unmarried and are age 62 or older. It those criteria are met, there are two choices for maximizing benefits, depending on one’s date-of-birth.

For those born prior to January 2, 1954, a divorced-spouse benefit can be claimed at full retirement age while their individual benefit earns delayed retirement credits until age 70. At age 70, the divorced-spouse can then switch to the higher individual benefit.

For those born after January 2, 1954, this option is no longer available.  When the divorced-spouse files for benefits, he / she effectively files for all retirement and spousal benefits.

Example 1: Tim and Trudy, both born prior to January 2, 1954, are divorced after a 10-year marriage. At full retirement age, Tim’s individual benefit is $2,500 and Trudy’s is $1,600. Trudy files a restricted application for her divorced-spouse benefit and receives 50% of Tim’s benefit, or $1,250 monthly, from age 66 to 70, while allowing her own benefit to earn delayed retirement credits. At age 70, Trudy can then switch to her maximum benefit of $2,112 monthly for her lifetime (not including cost-of-living adjustments).

Example 2: John and Julie, both born after January 2, 1954, are divorced after a 10-year marriage. At full retirement age, John’s benefit is $2,600 and Julie’s is $700. Rather than applying for her own benefit of $700, Julie can apply for one-half of her ex-spouse’s benefit, which would be $1,300 monthly for her lifetime (not including cost-of-living adjustments).

Other considerations:

  • If your ex-spouse has not applied for retirement benefits, you can still apply for a divorced-spouse benefit as long as it’s been two years since the divorce.
  • The dollar benefit you receive has no effect on the benefit your ex-spouse or their current spouse may receive.
  • If you remarry, you generally cannot collect benefits on your former spouse’s record unless your later marriage ends (whether by death, divorce or annulment).
  • If you remarry and divorce again, you can claim a divorced-spouse benefit based on either ex-spouse and may choose the higher of the two benefits (or three or four, as the case may be, as long as each marriage lasted 10 years or longer).

Learning how divorce intersects with Social Security rules can give one a financial edge that can play a significant role in a successful retirement. For more information, visit the Social Security website at https://www.ssa.gov/planners/retire/divspouse.html or contact Cristin Rigg, CFP®, CDFA™.