By Jennifer Jank
Social Security retirement benefits are an important component of income for older Americans, and it’s helpful to know at a higher level how the program works. Divorce may or may not affect benefits, but it may be something you’ll want to take into account during the process.
Ten years of employment (technically 40 quarters of work with a minimum amount of earnings) qualifies workers for Social Security retirement benefits based on their own work record. The calculation of payment results in the Primary Insurance Amount (PIA) at Full Retirement Age (FRA), which for most people not already retired is somewhere between the ages of 66 and 67, depending on the year of your birth. You can sign up for an account at ssa.gov to get all your Social Security retirement information, including FRA.
The earliest age where retirement benefits can be claimed is 62. The amount you would receive at age 62 is on your statement. You’ll notice it is significantly less, and so taking Social Security early may not be a good idea. For each month before FRA that your benefits are paid, the payment is permanently reduced, and the reduction is greater the earlier you begin. Secondly, if you are still working in the years before your FRA, Social Security reduces your benefits $1 for every $2 you earn above the limit, which is about $17,000 for 2018. You’ll also be penalized the year you reach FRA for months you work before you reach it, though the limit is higher (a little over $45,000) and the reduction is $1 for every $3 earned above the limit. Once you reach FRA, there is no reduction of benefits even if you’re still working.
You receive an increase in benefits for delaying claiming the money past your FRA. It amounts to about 8% per year past FRA until age 70 (this amount is also on your statement). Delaying until age 70 makes sense for those who live until their late 70s/early 80s, because that is when the cumulative payments of the higher benefit outweigh the cumulative payments that would have been received if started at FRA. A woman who is currently age 65 is actuarially likely to live until nearly 87, and a man the same age will likely live to age 84. Unless you will need money at age 62 to live on, or you have a disease or condition that normally results in a reduced lifespan, you’ll likely benefit from holding off taking Social Security until age 70 and accepting the higher amount.
Unless, you’re eligible for benefits on your ex-spouse’s record and either half the ex’s benefits are greater than yours at age 70, or you can’t claim Social Security on your own work record. To be eligible, you need to have been married ten years or more. If the marriage dissolved less than two years ago, you won’t be able to claim on your ex’s record unless he or she is already claiming benefits. If the divorce was final two or more years ago, you are eligible to claim whether or not your ex has already claimed. As long as you are at your FRA, you will receive half your ex’s PIA. If you want to claim benefits before you reach your FRA, they will be permanently reduced, as they would on your own record. There is no increase in benefits for delaying until age 70, so your FRA is a good time to start if you’re claiming on your ex-spouse’s record.
Choose your claiming strategy wisely!
President, Divorce Nest