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By Grace S. Yung
For roughly 80 years, many Americans have counted on the “safety net” provided by Social Security. This program has been responsible for keeping numerous individuals and couples out of poverty during their retirement years. But it can actually be so much more.
Although Social Security was never meant to replace all of your income from employment, it is considered to be a retirement staple for many people—and, according to the Social Security Administration, these benefits typically replace about 40 percent of an average wage earner’s income after retiring.
When people think about Social Security, they usually tend to focus only on the retirement benefits that the program provides. But the reality is that Social Security actually offers a number of other nice benefits, too.
For example, if you become injured or too ill to continue working, Social Security provides a monthly disability income to those who qualify. It can also provide benefits to survivors of deceased benefit recipients—including, of course, a deceased worker’s spouse.
Since spousal income and survivor benefits are only available to those in a legally recognized marriage, those benefits were until recently limited to couples in opposite-sex unions. However, as a result of the Marriage Equality Act, that has changed.
Social Security Benefits for Married Same-Sex Couples
In June 2015, the Supreme Court ruled that same-sex couples have the right to marry in all 50 states—and because of this, same-sex spouses will now be recognized as married for the purpose of determining entitlement to Social Security benefits.
Benefits that same-sex couples may now be eligible for, based on their spouse’s work record, can include:
• Spousal Benefit
Even if a person has never worked and paid taxes into the Social Security system, he or she could still be eligible to receive spousal retirement benefits, provided that they are at least age 62 and their eligible spouse is already receiving Social Security retirement income (or has “filed and suspended” their benefits—see below).
As an eligible spouse, if you are at what Social Security considers to be your full retirement age, then your spousal benefit could be equal to half of your spouse’s full benefit amount. If, however, you are between the age of 62 and your full retirement age, then the amount of your benefit will be reduced.
Full retirement age for Social Security benefits is based on the year of your birth. In the past, it was always 65. However, in order to help ease some of the funding strain on the Social Security system, the full retirement age is gradually being raised. Currently, a person’s full retirement age is as follows:
• Widows/Widowers Benefit
The surviving spouse of a deceased Social Security benefit recipient can also receive a widow’s or widower’s benefit. In fact, according to the Social Security Administration, there are currently about five million widows or widowers who receive monthly Social Security benefits based on their deceased spouse’s earnings record. And now that same-sex spouses are being added to this group, this number will surely increase.
The widow or widower of a Social Security benefit recipient can receive a reduced amount of benefit as early as age 60—or they may receive full benefits by waiting at least until their own full retirement age.
Alternatively, a disabled widow or widower could actually receive these benefits as early as age 50—if a qualified disability began either before or within seven years of the Social Security recipient’s death. With disability benefits, even if the widow or widower remarries after they reach age 60 (or age 50, if they are disabled), they can still continue to receive their monthly checks.
• Divorced Spouse’s Benefit
Many people do not realize that a divorced spouse may also be eligible for Social Security benefits, based upon their ex’s work record. In this case, if you are divorced after being married for 10 years or more, you can receive these benefits—even if your ex-spouse remarried—provided that all of the following apply:
• You are not currently married
• You are age 62 or over
• Your ex-spouse is eligible—even if he or she has not actually applied—for either Social Security retirement benefits or Social Security disability benefits, and
• The Social Security benefits that you are eligible for based upon your own work record are less than the amount that you would get based on your ex’s work record.
Collecting divorced spouse’s benefits will not impact the amount that your former spouse receives for his or her monthly retirement from Social Security. However, should you remarry, then you will no longer be eligible to collect on these benefits—unless that marriage also ends.
• Disability Benefit
Social Security will also pay out monthly benefits to qualified individuals who aren’t able to work due to an illness or injury that is expected to either last one year, or to result in death. There are also certain family members of a disabled worker who could receive income from Social Security. However, there are fairly strict definitions in terms of how to qualify for the
The Social Security Administration will review a number of criteria, including:
• Your overall medical condition
• How your condition started
• How it limits your activities
• What treatment you are receiving and/or have received
• Whether or not you are currently working, and if so, if you are able to do the type of work that you did previously.
If you qualify, the first monthly disability benefit payment will be made in the sixth full month after the date that your disability began. In other words, if your disability started in mid-February, then your first disability benefit payment will be made in August. Some family members who could also qualify for benefits based upon your work earnings. These include your:
• Spouse—provided that they are at least age 62
• Spouse of any age, provided that they are caring for your child who is either age 16 or under, or who is disabled
• Unmarried child who is age 18 or under (age 19 or younger if in high school)
• Unmarried child of any age who is also disabled (provided that the disability began prior to age 22).
• Survivors Benefit
Social Security also provides various benefits to a recipient’s survivors. For instance, a one-time death benefit of $255 may be paid out to a surviving spouse, provided that the spouse was living with the individual at the time of his or her death.
In addition to a widow/widower and a surviving divorced spouse, there are also other various family members who could be eligible for monthly Social Security survivor’s benefits. These include:
• Stepchildren, grandchildren, step-grandchildren, and/or adopted children
• Parents who are age 62 or over and who had been depending upon the deceased Social Security recipient for at least half of their financial support.
Maximizing What You Get from Social Security
Although Social Security is a key component in the retirement income plan of many, what a large number of investors don’t realize is that there are ways to strategize your filing in order to maximize your benefit amount.
There are literally thousands of combinations of ways that people can file to receive their retirement benefits from Social Security. The difference between a good and a not-so-good filing decision can sometimes amount to $100,000 or more in benefits over your lifetime.
For example, delaying receipt of your benefits beyond your full retirement age can permanently increase the amount of your monthly benefit going forward. In fact, the longer you wait to receive your benefits, the more “delayed retirement credits” you will receive—until you reach age 70. (You can actually continue to delay the receipt of your benefits beyond age 70, but you will not be able to build up any more delayed retirement credits.) The amount of your benefit increase is 8 percent for every year you delay receiving benefits (for those born after 1942).
So if your full retirement age is 66, and your full Social Security retirement benefit was to be $2,000 per month, you could opt to delay your benefits and factor in an 8 percent increase for each year that you wait. (And this doesn’t include any cost-of-living increases that Social Security also figures in to your payments.)
For the next few months, married couples who are now at retirement age can also employ a strategy that is commonly referred to as “file and suspend.” Here, at least one of the spouses will need to be at his or her full retirement age. Once this spouse files for their Social Security retirement benefits, they should immediately “suspend” the receipt of those benefits until a later time in the future.
At the same time, the other spouse—provided that he or she is at least age 62 or older—should apply for his or her Social Security spousal benefits. When the first spouse has allowed their benefit to grow by applying the delayed retirement credit, they should then start taking their benefit.
As an example, let’s say that John is age 66—which is his full retirement age. His spouse, Steve, is 62. John’s monthly Social Security retirement benefit at his full retirement age of 66 will be $2,000 per month. However, if he waits until he turns 70 to collect it, the benefit will increase to $2,640 per month.
So, as soon as John turns 66, he applies for his Social Security retirement benefits, and then immediately suspends them. At the same time, Steve applies for his spousal benefits, based on John’s work record.
Four years later, when John turns 70, his monthly amount is increased by 32 percent over what it would have been if he had taken the income at age 66. In the meantime, the couple has been able to take advantage of receiving Steve’s spousal income benefits.
It’s important to note that when using the file-and-suspend strategy, the spouse who is applying for the spousal benefits should typically wait until he or she has reached full retirement age—especially if they are still working. That way, none of the Social Security income limits would apply.
Also, once you reach your full retirement age, you will have the option of taking either your spousal benefits, or the benefits from your own work history.
For retirement-age couples who are currently considering using the file-and-suspend strategy to increase Social Security benefits, it will be important to act fast, as the Bipartisan Budget Act of 2015 enacted on November 2 will have a major impact on this particular income-boosting method. Through April 30, 2016, anyone who is age 66 or over will still be allowed to file and suspend their benefits in order to allow an eligible spouse to collect via the current rules. After April 30, this will no longer be the case, unless the filer takes a benefit. So after April 30, in order for a spouse to collect their benefit from Social Security, the filer must also collect their own retirement benefits, and thus forgo their delayed retirement credits. If a person opts to suspend his or her benefits, then all spousal benefits will also be suspended.
The Bottom Line on Social Security
The Social Security benefit landscape can change frequently—especially in light of the many recent changes with marriage equality. When planning your retirement income strategy, it is a good idea to work with a professional who is knowledgeable about how Social Security relates to the LGBT community. This way, you can be more assured of how it all fits together.
Personal finance-related questions may be emailed to [email protected]
Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the 2014 September issue of Texas Monthly.