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Your clients will likely go through a lot of life events. And many will consult with you for guidance along the way. When it comes to Social Security benefits in particular, marital status can play a big role, and it’s something for them to consider as they prepare for retirement.
How marital status affects benefits can be overlooked in a moment of stress. That’s why it can be important to have these discussions before a major event, such as a divorce, remarriage, or the death of a spouse. Here are a few topics you can bring up during checkup meetings:
When a worker files for Social Security retirement benefits, the spouse may also file for a benefit based on the working spouse’s earnings. That benefit can be up to half of the worker’s benefit. But:
- The spouse must be at least 62 or be caring for a child under age 16 or receiving Social Security disability benefits.
- The benefit the spouse receives may be up to half the worker’s benefit, but will be reduced if the spouse is not at full retirement age (FRA). If the spouse is eligible for his/her own retirement benefit, and that benefit would be higher than the worker’s benefit, Social Security will pay the higher of the two.
Spousal benefits for divorced couples
Sometimes clients get divorced. The lower earner (perhaps a stay-at-home parent) may still file on the higher earner’s record, provided he or she meetings a few conditions.
To file on an ex-spouse’s record, he or she must have been married at least 10 years, be at least 62, and be currently unmarried. And filing on an ex’s record is usually only worth it if the person’s own benefit would be less than the benefit received from an ex’s. A divorced client may not realize the ex-spouse doesn’t have to give permission and filing won’t affect the ex’s own benefits.
These are just the basics. A full list of the rules is available here.
When clients get married or divorced, they may change their name. You can remind them they’ll need to tell Social Security. Any time people change their name they need inform Social Security so earnings are properly recorded. They’ll need a new Social Security card, too.
What about same-sex marriage? Not a problem. Citing a 2015 U.S. Supreme Court ruling, marriage is marriage in the eyes of Social Security. Social Security recognizes same-sex marriage from all states and even some non-marital legal relationships (some civil unions and domestic partnerships).
Spousal death benefit
The death or grave illness of a client’s spouse probably isn’t a conversation you’re eager to have, but clients may be surprised to learn how little the death benefit is – just $255. That lump sum hasn’t changed since 1954.
In addition to the one-time $255 check a spouse may receive, there is also the possibility of ongoing survivor’s benefits. If a worker passes away, the spouse can apply for survivor’s benefits (monthly payments) as early as age 60. If the survivor’s own retirement benefit would be higher, he or she can switch to that benefit as early as 62.
If a spouse dies before filing for benefits, the survivor’s benefit is calculated as if he or she had reached full retirement age. If the deceased spouse was already collecting early benefits (a reduced amount before full retirement age) the survivor’s benefit is calculated using that amount.
Clients might assume that if their spouse dies, they continue to receive that person’s Social Security, and the household continues receiving two checks a month. But that’s not the case.
As you have discussions about lifetime retirement income, you may want to explain that when a spouse dies, if he or she was receiving a larger monthly benefit than the survivor, the survivor would receive extra payments to equal that higher amount. But total household income declines because now there’s only one check.
For example, if one spouse received $1,200 a month and the other received $1,500, total household income would be $2,700 a month. But if the higher-earning spouse died, the survivor would only “step up” to the $1,500 monthly benefit, an increase to the survivor’s check, but an overall decline in household income of $1,200.
That could lead to a discussion about other sources of lifetime retirement income.
And one more thing
Marriage and Social Security used to have a bit more complicated relationship. As a financial professional, you may have explored strategies allowing a couple to work together to increase potential lifetime benefits.
But Congress in 2015 erased most of those loopholes.
For some clients (and there are fewer every year), there is still a way to file a restricted application and potentially increase lifetime household benefits. One strategy remains for couples born before 1954 if both are entitled to Social Security benefits based on their own work record. At full retirement age, one spouse can apply for spousal benefits on the other’s benefits, leaving his or her own benefits to increase until age 70, then claim an enhanced benefit.
Neither Transamerica nor its agents or representatives may provide tax, investment or legal advice. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on their own independent tax and legal advisors and financial professional regarding their particular situation and the concepts presented herein.