Examining Strategies for Enhanced Social Security Payments in Post-divorce Retirement: An Illustrative Example
In the United States, understanding the complexities of Social Security benefits can significantly impact one's retirement finances. A recent case study involving Susan, a 71-year-old divorced woman, underscores this importance.
Susan began collecting her retirement benefits at age 62, reducing the amount to 75% of her Primary Insurance Amount (PIA), resulting in a monthly benefit of $890. However, by optimizing her benefits, she could have increased her monthly income substantially.
To be eligible for Social Security benefits based on an ex-spouse's earnings record, certain criteria must be met. Susan, who was married to her ex-husband, Robert, for 17 years, meets these requirements. She is currently unmarried, at least 62 years old, and Robert is eligible for Social Security retirement or disability benefits.
Divorced spouses can receive up to 50% of their ex-spouse's FRA benefit, known as their Primary Insurance Amount. In this case, Susan is eligible to receive $1,846 a month as her divorced spouse benefit, which is higher than her current benefit of $890 and her PIA of $1,187.
The timing of claiming these benefits is crucial. If claimed before the Full Retirement Age (usually 67), benefits will be reduced. However, if one claims their own benefit early, they remain entitled to claim divorced spouse benefits later if that amount is higher. Ideally, it is best to wait until the Full Retirement Age to maximize benefits, or file strategically to receive the higher amount between one's own and their ex’s benefit.
Susan missed the opportunity to claim the maximum amount of these benefits at her Full Retirement Age of 66, resulting in the loss of about five years' worth of higher benefits. By requesting retroactive benefits, Susan can recover a portion of the funds she missed due to delayed action. If she had filed for both benefits at her Full Retirement Age, her fully payable spouse "top-off" amount at FRA would be $659.
Consulting with subject matter experts can help optimize Social Security benefits. In Susan's case, seeking advice from a Social Security expert or attorney would have been beneficial, especially given her complex earning history and remarriage after 60.
This case study highlights the importance of understanding Social Security rules and consulting with experts to maximize benefits. By taking these steps, Susan can significantly increase her monthly Social Security income from $890 to $1,549, a meaningful improvement in her financial situation.
[1] Social Security Administration: Retirement Benefits [2] Social Security Administration: Spouse's Benefits [3] Social Security Administration: Divorced Spouse's Benefits [4] AARP: Social Security Benefits for Divorced Spouses [5] Forbes: Social Security Benefits for Divorced Spouses
- Despite Susan's initial decision to collect her retirement benefits at 62, she could have significantly increased her monthly income by optimizing her benefits based on her eligibility as a divorced spouse, which would have allowed her to receive up to 50% of her ex-spouse's Primary Insurance Amount (PIA).
- To further increase her Social Security income, Susan can request retroactive benefits to recover a portion of the funds she missed due to delayed action, reaching a fully payable spouse "top-off" amount at her Full Retirement Age of $659, bringing her monthly income from $890 to $1,549 – a meaningful improvement in her personal-finance situation.
