Silver Divorce and Retirement Income Planning: Social Security

This installment, number three of the six-part Silver Divorce blog series addresses Social Security benefits.

Though nearly 90 percent of Americans over the age of 65 ultimately collect Social Security benefits, research shows few actually understand it. Nationwide Retirement Institute’s 2016 Consumer Social Security PR Study exposed a staggering number of retirees and near retirees who don’t accurately comprehend their Social Security benefits or work with a financial advisor who does. Many people who file for and claim Social Security benefits alone end up misusing or underusing this valuable component of their retirement income because they’re unsure about critical details related to topics like timing, amounts and spousal strategies.

Less than a third of retirees or those near retirement work with a financial advisor. Those who do should feel confident in the advice and guidance they receive. Be certain not to overlook or avoid these following points so you can help clients get the most value from their Social Security benefit.

Strategically choose the right time to claim Social Security benefits

Making the right choice about when to claim Social Security benefits can add thousands of dollars to a client’s bottom line. A thorough review of your client’s overall financial picture will determine the best timing for receiving benefits. Take advantage of the online calculator on the SSA website. It is easy to use and illustrates how filing at different ages potentially affects monthly payments.

Determine the amount of your client’s Social Security benefit

Creating a retirement income plan is easier when you have an accurate understanding of a client’s assets. Learn the exact value of an individual’s Social Security benefit by visiting the Social Security Administration (SSA) website. It is easy for clients to set up a secure account to review earnings and benefit estimates.

Educate clients about divorcee benefits

Social Security benefits are based on earnings over the course of an individual’s career, however, a former stay-at-home-parent or low-wage earner may not qualify for benefits on their own earnings history. In the case of divorce, the lower- or non-earning partner’s benefit is based on their former spouse’s higher earnings.

Explain divorce timing and benefits

For the former stay-at-home parent or low-wage earner to receive benefits based on the higher-paid spouse’s wages, they need to have been married for 10 years or more. Clients departing long-term marriages are unaffected by this point, but those exiting shorter marriages must wait until their tenth anniversary to receive the Social Security benefit based on the higher earner’s income.

Understand how death of a former spouse influences Social Security

Even if the higher earning ex-spouse passes away, the surviving divorced spouse is entitled to the same Social Security benefits as a surviving widow or widower, so long as their marriage lasted at least 10 years. Benefits paid out to the surviving ex-spouse do not change the value of benefits paid to other survivors.

Clarify how remarriage affects benefits

If the lower-earning spouse receiving their former spouse’s higher income rate decides to remarry, the remarried spouse will lose the higher Social Security benefit derived from their former spouse’s income. The Social Security benefit level drops to the rate they are entitled to based on their personal earnings.

Social Security benefits typically comprise a significant part of retirement income for silver divorcees. Your value to retired clients, near-retired clients, and clients experiencing late-life divorce will be measured in part by your ability to confidently help them optimize assets like Social Security. Deepening your expertise in core retirement income planning competencies enables you to guide existing clients and court new ones who need the help of a capable professional.

Learn how expanding your retirement income knowledge can help you help your clients, including those experiencing late-life divorce. Download, "The Guide to Being a Successful Retirement Income Planner."