by Grace S. Yung
When it comes to retirement, one of the primary sources of income in our “golden years” has long been Social Security. In fact, when many financial advisors refer to the “3-legged stool” of retirement income, Social Security is one of those legs, with employer pension income and personal savings making up the other two.
Even though we’ve heard a lot lately about the uncertainty of future Social Security benefits, the truth is that this program is likely to still be in place long into the future—but it may have to face some changes along the way.
One of the biggest changes that Social Security has faced recently, though, has nothing to do with proposals to halt cost-of-living increases or alter the full-retirement age. As of June 2013, the doors to Social Security spousal and survivor’s benefits were opened to many married couples in the LGBT community following the 2013 Supreme Court ruling that struck down part of the 1996 Defense of Marriage Act. And because Social Security is a federal program, these spousal benefits are available even in states like Texas that do not recognize same-sex marriage licenses from other states.
Social Security’s Many Benefits
While many people may think of Social Security as providing only income benefits to retired workers, this program actually offers much more. For instance, income is also available to those who qualify for disability benefits and survivor’s benefits, as well as a one-time lump-sum death benefit.
The spouse of a qualified worker can also receive Social Security retirement benefits, even if he or she never worked outside of the home. Spousal benefits can be received if that spouse is at least 62 years of age and the worker spouse is either eligible for, or is already receiving, Social Security retirement or disability benefits. Typically, if that spouse starts receiving his or her Social Security spousal benefits at their full retirement age, then their benefit can be equal to half of the worker spouse’s full retirement benefit amount.
Ex-spouses can also claim Social Security benefits based on a former spouse’s work record, provided that certain criteria have been met. First, the marriage must have lasted for at least 10 years. In addition, the working spouse must be eligible for Social Security benefits (although they do not have to be receiving them, or even have filed), and the person claiming the benefits cannot be re-married.
In many cases, those in the LGBT community were married to an opposite-sex partner in the past. If this is the case, and if the necessary criteria are all met, it may be possible to claim benefits based on a past marriage.
In situations where an individual who is now married to a same-sex partner is applying for an ex-spouse’s benefits based on that former opposite-sex spouse’s work history, it will be important to consult with Social Security in order to determine if a current same-sex marriage will disqualify the individual for benefits, or if they will still be allowed.
Survivor’s benefits are another key area in which Social Security benefits are paid. A widow or widower of a deceased qualifying worker can receive reduced benefits as early as age 60, or full benefits at their full retirement age or older.
In some circumstances, a survivor may even be able to obtain benefits as early as age 50. And even if a widow or widower remarries after age 60, he or she may continue receiving their survivor’s benefits from Social Security.
Maximizing Your Social Security Retirement Benefits Dollars
As you approach retirement, there are some strategies you can use to maximize the amount that you receive from Social Security. In using these techniques, you can potentially enhance your benefits exponentially.
Delaying the Receipt of Benefits
One way to increase the amount of your Social Security benefit is to simply › delay the date when you start receiving them. Even though individuals can begin receiving Social Security retirement benefits as early as age 62, benefits are reduced by taking them early—and the amount will remain lower even after you reach your full retirement age.
Alternatively, you can also opt to continue working past your full-retirement age. If you do, there are actually two ways to increase your future Social Security benefits. First, each year that you work will add another year of earnings to your Social Security work record. In addition, your future benefit amount will also increase automatically by a certain percentage from the time that you reach your full retirement age until you either start receiving benefits or you reach age 70. (While you don’t have to start taking benefits at age 70, the annual benefit increases will stop at this age).
For people who were born in 1943 or later, benefits will increase by 8 percent each year that they delay taking their benefits beyond their full retirement age. What this means is that if your full retirement age is 66, and you delay taking your Social Security retirement benefits until you are age 70, you could increase your monthly benefit amount by a total of 32 percent.
File and Suspend Strategy
There is another benefit-maximization strategy for married couples referred to as file and suspend. Couples can use this technique by having the higher-earning spouse establish their benefit amount by applying for benefits at any time after reaching full retirement age. Then, rather than receiving their benefits, the person will immediately “suspend” the receipt of their benefits until some point in the future.
At the same time, the lower-earning spouse will apply for his or her Social Security spousal benefits that are based on the higher earner’s working record. The lower-earning spouse can immediately start receiving half of the higher earner’s benefit amount. Then, when the higher-earning spouse turns 70, they can begin taking their own retirement benefits, which will then be higher due to the delayed retirement credits that they earned by waiting to receive them.
The Bottom Line on Social Security
Following the 2013 changes to the Defense of Marriage Act, the Social Security Administration has stated that it is now processing some retirement, surviving spouse, and lump-sum death payment claims for same-sex couples, and the program is encouraging individuals to apply for benefits—even if they are not sure whether or not they are eligible.
When planning for retirement income, Social Security will likely always play a primary role. So, it is important to have a good understanding of how this income can fit into your overall income plan, as well as how you can maximize this government benefit.
There are a variety of strategies that can be developed, depending on each individual or couple’s needs. Because of the vast array of tax, financial, and other issues that are involved, it is always best to work with a professional who is well-versed in planning—especially as it relates to the LGBT community.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Personal finance-related questions may be e-mailed 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.