When it comes to social security, divorced individuals often times have more benefits and options available to them than married couples. Given that the divorced rate remains high in this country, it is critical that couples filing for divorce understand their potential social security benefits BEFORE their divorce is finalized.
This could not be more evident than for a client of mine who came to me after having finalizing her divorce after 9 years and 9 months of marriage. The first question I asked her was "are you absolutely sure that your marriage didn't last 10 years?". Sometimes delays in paperwork and filing procedures can take a few more months than you expect. She was absolutely certain it was 9 years and 9 months. Unfortunately, I had to be the one to tell her that if they could have agreed to stay married for 10 years or longer and then get divorced, she could have potentially received $500,000 to $1 million in social security benefits. Now she will not be eligible for any benefits. This is because, in order to receive divorced spouse benefits from social security, you had to have been married for 10 years or longer. There are some additional requirements as well but the 10 year rule is a minimum requirement.
In my client's case, she was a stay at home mom and had not qualified for her own social security benefit. If her marriage had lasted 10 years or more she would have qualified to receive 50% of his benefit amount while they were both alive or 100% of his benefit amount if he predeceased her. Since his social security benefit was near the maximum eligible monthly amount, she could have earned, over her life expectancy, $500,000 if he also lived to life expectancy or as much as $1 million if he predeceased her.
In my experience, most matrimonial attorneys do not discuss social security benefits as part of the divorce settlement. The reason is likely that they are not specialists in this field and neither are most CPA's and financial advisors for that matter.
There is a great deal of complexity in the social security system. There are over 2,700 rules that govern social security. Couples who divorce after 10 years of marriage typically have more social security benefits and options available to them than they would have had they stayed married! But you have to know the rules.
If you do qualify for social security divorce spouse benefits but then get remarried, you will no longer be eligible to receive divorced spouse benefits, unless your new marriage also ends in divorce or the death of your new spouse. Please note that there is a potential exception if you remarry and your ex-spouse predeceases you. In that instance you may still be eligible for benefits under certain circumstances.
Social security is a mine field of rules and exceptions to rules so, if you are planning on getting a divorce or are currently divorced, seek out the guidance of a social security specialist who can make sure that you obtain all the benefits you are eligible to receive.
I do a lot of speaking engagements on the topic of social security. One of the first questions I ask the crowd is "please raise your hand if you have a pension, as opposed to a 401K plan or an IRA". Typically fewer than 10% of the participants raise their hands. Then I ask, "for those of you with your hands raised, how many of you have a pension that is guaranteed by the Federal Government, guaranteed to pay you as long as you live, provides spousal benefits, survivor benefits, children's benefits, caregiver benefits, divorced spouse benefits, disability benefits and payments that increase each year with inflation?". Suddenly even the hands that were raised come down. Then, much to their surprise, I tell them that "probably every one of you should have your hands raised. Why? Because it's likely that all of you qualify for social security, the exact pension plan that I just described.
It is arguably one of the greatest pension plans ever created and most people are unaware of it's potential value to them. In fact, if you were able to devise a filing strategy to maximize your eligible social security benefits, it would likely end up being your largest retirement asset, providing a level of lifetime income that may exceed your 401K or other retirement assets. In fact, for many middle income families, social security may pay out as much as $1 million or more in lifetime benefits!
Unfortunately, according to the National Social Security Association, LLC, over 90% of recipients receive less money than they are entitled to. This can amount to tens of thousands or even hundreds of thousands of dollars in lost benefits. There are a number of reasons for this but the primary reasons are as follows:
1. Social security rules are extremely complex.
2. There are over 2,700 rules that govern social security. A typical couple has over 567 possible filing strategies!
3. Social security staff are prohibited from offering advice.
4. There are very few professionals who specialize in social security planning strategies and who know how to uncover all your eligible benefits.
So, the next time someone asks if you have a personal pension, you now know to say that yes you do. Hopefully you will also be able to say that you will not be leaving any money on the table because you sought out assistance from a social security specialist and put together a filing strategy to maximize your eligible benefits.
Ash Ahluwalia, NSSA, CCSCA, MBA