The new Social Security claiming rules that went into effect back in April of this year have effectively created two different sets of rules that ex-spouses of primary earners can use, depending upon their date of birth. The Bipartisan Budget Act of 2015 has led to this division in claiming strategies that are now available to divorced Social Security filers.
It is important for advisors to understand the differences between the two sets of plans and know which rules will apply to a given client. Here’s what you need to know about divorce and Social Security under the new rules. (For more, see: How Does my Spousal Social Security Benefit Work?)
Basic Rules for Divorce Under Social Security
The standard divorce rules for Social Security say that if an individual was married for at least ten years to their spouse and then divorced, he or she is eligible to collect spousal benefits on the earnings of the ex-spouse as long as the recipient is currently single. The divorced spouse can collect on the ex-spouse under these circumstances even if the spouse whose earnings are being claimed upon has remarried. Furthermore, if the ex-spouses have been divorced for at least two years, then one ex-spouse is “independently entitled” to claim benefits based upon the other’s earnings, even if the other spouse has yet to file for benefits. But both ex-spouses must be at least 62 years old in order for this to apply.
In some instances, one ex-spouse can claim a spousal benefit equal to one-half of the other spouse’s full retirement benefit while suspending their own benefit and allowing it to grow by 8% per year to the maximum possible amount at age 70. This is where the new rules come into play. Under the new Social Security regulations, only ex-spouses who were born before on or before Jan. 1, 1954 are allowed to file a restricted claim for spousal benefits at age 66 and suspend their own until age 70. Those who were born after this date do not have this option. Married couples also do not have this option, as only one spouse can claim spousal benefits. And both married and divorced spouses who were born on or after Jan. 2, 1954 will now automatically be deemed to file for all available benefits (both spousal as well as their own) at the same time when the time comes for them to claim their Social Security benefit. They will automatically be paid the highest benefit available. (For related reading, see: How Much Social Security Will You Get?)
However, this rule is not applicable to survivor benefits. This means that a divorced spouse who has not yet filed for Social Security benefits and has an ex-spouse who dies, has the option of claiming survivor benefits first and suspending their own until age 70. Or, depending upon how old the spouse is when the ex-spouse dies, he or she could claim the reduced retirement benefit first and then switch to the full survivor benefit when full retirement age is reached.
One more new rule applies to divorced Social Security filers. Under this rule, anyone can file early for a reduced Social Security benefit and still suspend benefits at full retirement age until age 70. In most cases, that will put a stop to any additional benefits paid to spouses or dependent or disabled children. But it will not stop spousal benefits from being paid to an ex-spouse.
The Bottom Line
Advisors need to familiarize themselves with the new Social Security rules in order to effectively counsel their clients in this matter. Filing for Social Security benefits is a major financial decision that will substantially impact the quality of retirement that is enjoyed by the retiree. For more information on Social Security benefits, visit the Social Security website at www.ssa.gov. (For related reading, see: 4 Unusual Ways to Boost Social Security Benefits.)