Social Security benefits are a crucial ingredient in many people’s retirement calculations. However, determining how much you will receive in Social Security and how much you are eligible for can be complicated. You don’t want to leave any money on the table.
The first step should be talking with your financial advisor. A financial advisor who understands your situation knows your concerns, and is focused on helping you plan for your goals can help you make a wise decision about when and how to take your benefits.
One of the most complicated areas of Social Security is spousal benefits, which can pertain to divorced, married, or widowed individuals. A financial advisor can help you understand what you’re entitled to and how you can use your benefits to your advantage.
At Scarborough Capital Management, we get asked about Social Security often. And we see 3 common ways many people leave money on the table. We want to share these oversights with you, as well as what you need to know so you don’t repeat them!
Not Taking Your Ex’s Benefits
You may be eligible to draw on your ex-spouse’s Social Security benefits if you are divorced, as long as the marriage lasted 10 years or more. In addition, you cannot currently be married to someone else. You are eligible to claim Social Security on an ex-spouse’s record if you were married to someone else after that marriage as long as subsequent marriages have ended, either through death, divorce, or annulment.
You must be at least 62 years old and your ex needs to be entitled to Social Security benefits. In addition, if you are eligible for Social Security retirement benefits yourself, you can only claim benefits if your own benefit is less than the benefit you’d receive from your ex’s work record. Spousal benefits are usually 50 percent of the Social Security a spouse receives. In other words, if your ex is eligible for $2,000 in monthly Social Security benefits, your spousal benefits would be $1,000.
Your claim on an ex-spouse’s benefits, by the way, does not depend on that spouse’s marital status, and it does not have any effect on either their benefits or their current spouse’s.
Determining Eligibility for Social Security Retirement Benefits
How do you know if your ex is eligible? Eligibility requirements for Social Security retirement benefits are the same for everyone. The Social Security Administration (SSA) requires that people accrue a total of 40 credits throughout their working life. One credit is earned through a certain amount of wages or self-employment income. In 2020, for example, $1,410 in either earns one credit. (The amount was slightly less in past years and can rise slightly year to year going forward.)
People can earn a maximum of four credits per year, so 40 credits essentially require 10 years total of work. The work need not be consecutive but accrues throughout one’s lifetime.
Full Retirement Age and its Relationship to Social Security Benefit Amounts
Why do you need to be at least 62 years old? Simply put, that’s the first age at which everyone becomes eligible to receive the Social Security retirement benefits to which they’re entitled.
That requires us to explain another important concept in Social Security: Full retirement age (FRA). The amount of benefits all Social Security recipients receive has a crucial relationship to their FRA and the years directly before and after it.
Everyone has an FRA, which is determined by a recipient’s birth year. Those born in 1960 and after, for instance, hit their FRA at the age of 67. Those born between 1943 and 1954 have a FRA of 66. For folks born between 1955 and 1959, FRA occurs at the age of 66 and some months; a handy chart can be found here.
Anyone eligible for Social Security retirement benefits can receive their full retirement amount at their FRA.
Here’s where a lot of people get confused: Everyone who can receive these benefits becomes eligible to claim them at the age of 62, regardless of their FRA. The only kicker is that benefits are reduced by a certain percentage if they begin before one’s FRA. The reduction is permanent, too.
Conversely, Social Security benefits increase for people who elect to take their Social Security benefits later than their FRA, up to the age of 70. The amount increases about 8 percent every year between your FRA and the age of 70. After 70, there is no further increase.
At Scarborough Capital Management, we offer individual Social Security analysis. For more about this, click here.
Knowing What Level of Benefits You Can Receive on Your Ex’s Social Security
If you elect to receive benefits on your ex’s Social Security when you are at your FRA, the benefits will be equal to 50 percent of his or her full retirement amount.
What if you are eligible for both Social Security on your own account and your ex’s? In that case, the SSA pays your own first. If 50 percent of an ex’s amount is higher than your own, you’ll receive an amount on your ex-spouse’s record, so that the total you receive equals the higher amount.
What happens if you want to claim on an ex’s account but your ex hasn’t yet filed for Social Security benefits? As long as you have been divorced for a minimum of two consecutive years, you can still file for divorced spousal benefits.
Again, the rules can be complicated. Make sure you discuss your options with a financial advisor you trust.
Not Using Your Spouse’s Benefits While Letting Yours Grow Longer – or Vice Versa
Another common mistake people make is not using spousal Social Security benefits while letting their own Social Security benefits grow over time.
Spousal benefits are 50 percent of a spouse’s Social Security benefits (whether you are currently married or divorced), as long as you are eligible to receive a spousal benefit. Unlike benefits on one’s own record, however, spousal benefits do not increase between your FRA and age 70.
As a result, you should analyze your Social Security options to see how they are impacted by taking a spousal benefit when you reach your FRA and allowing your own Social Security benefits to grow until you reach the age of 70.
If you are divorced, there is an exception. You can only elect to delay your own benefits and take an ex-spouse’s if your birth date is before January 2, 1954. If you were born after that, filing once effectively means you are filing for all available benefits, either your own retirement benefits or spousal benefits.
Not Using the Death Benefit
Social Security offers death benefits to widows and widowers of eligible spouses in the form of a lump sum payment and monthly benefits. The lump sum is currently $255.
If your spouse passed away, you become eligible for a survivor benefit at the age of 60 (50 if you’re disabled, as long as you became so within seven months of your spouse’s death) as long as you were married at least nine months. Talk with your financial advisor about exceptions.
If you are divorced and your ex passed away, you become eligible for a monthly survivor’s benefit at the age of 60, as long as you were married for at least 10 years and you are not currently married. You can remarry after you turn 60, however, and the benefits will be unaffected.
For more retirement strategies, consult a financial advisor.
Scarborough Capital Management is not affiliated with the US Government or any governmental agency. As such, this content was not approved, endorsed, or authorized by the US Government and/or any governmental agency.
Go to www.ssa.gov for more information about the United States Social Security Administration.
Securities through Independent Financial Group, LLC (IFG), a registered broker-dealer. Member FINRA/SIPC. Advisory services offered through Scarborough Capital Management, a registered investment advisor. IFG and Scarborough Capital Management are unaffiliated entities.
