Retirement, Social Security, and Divorce

It is a part of our society today where divorce is something no longer seen as a mortal sin, but is just another normalcy and part of our social fabric. Gone is the stigma of the divorcee. Completely aside from societal morals, there is a financial aspect which needs to be considered here, especially as one approaches retirement.

The U.S. Census has found that divorce rates have dropped since 1996, but there is still over one third of women who divorce before age 24. That number drops significantly for older age groups, falling to 8.5% for women in the 30-34 year old age bracket.

Unfortunately, the, “if at first you don’t succeed, try, try again,” rule doesn’t apply here. While about 40% of first marriages end in divorce, that percentage climbs exponentially for second and third timers, with 73% of third marriages ending in a split. It would appear that past behavior is an excellent predictor of future behavior in that regard.

For divorced women nearing retirement, however, time is ticking away and financial readiness is an essential factor to consider. The good news is that although Social Security can be a rather complex matter, divorced women are eligible for a benefit that equals one-half of their ex-spouse’s full retirement amount, as long as they start receiving benefits at their full retirement age.

The following is taken from the Social Security Administration website:

If you are divorced, but your marriage lasted 10 years or longer, you can receive benefits on your ex-spouse's record (even if they have remarried) if:

• You are unmarried
• You are age 62 or older
• Your ex-spouse is entitled to Social Security retirement or disability benefits
• The benefit you are entitled to receive based on your own work is less than the benefit you would receive based on your ex-spouse's work.

Note: Your benefit as a divorced spouse is equal to one-half of your ex-spouse's full retirement amount (or disability benefit) if you start receiving benefits at your full retirement age. The benefits do not include any delayed retirement credits your ex-spouse may receive.

If you remarry, you generally cannot collect benefits on your former spouse's record unless your later marriage ends (whether by death, divorce, or annulment).

If your ex-spouse has not applied for retirement benefits, but can qualify for them, you can receive benefits on their record if you have been divorced for at least two years.

If you are eligible for retirement benefits on your own record and divorced spouse’s benefits, we will pay the retirement benefit first. If the benefit on your ex-spouse’s record is higher, you will get an additional amount on your ex-spouse’s record so that the combination of benefits equals that higher amount.

Note: If you were born before January 2, 1954 and have already reached full retirement age, you can choose to receive only the divorced spouse’s benefit and delay receiving your retirement benefit until a later date. If your birthday is January 2, 1954 or later, the option to take only one benefit at full retirement age no longer exists. If you file for one benefit, you will be effectively filing for all retirement or spousal benefits

If you continue to work while receiving benefits, the retirement benefit earnings limit still applies. If you are eligible for benefits this year and are still working, you can use our earnings test calculator to see how those earnings would affect your benefit payments.

If you will also receive a pension based on work not covered by Social Security, such as government work, your Social Security benefit on your ex-spouse's record may be affected.

Note: The amount of benefits you get has no effect on the amount of benefits your ex-spouse or their current spouse may receive.

Divorce can certainly exert a fair amount of stress on a person, and preparing for retirement comes with its own fair share of stressful, sleepless nights. But this piece of information and other helpful tips from the Social Security Administration’s website “Information for Financial Planners,” together with sound financial strategy from your financial planner, can certainly help ease the stress.

IMPORTANT DISCLOSURES

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC