Revenge of the Ex-Spouse…Social Security Style

Right after college you married (you thought) the love-of-your-life and a real go-getter. Then, after 14 years, three kids, multiple moves, one unconfirmed office romance, four months of marriage counseling and countless argument-filled weekends, it was done.  O-v-e-r.  As in, beyond repair.

Life as a single parent was a struggle. Your divorce lawyer was useless, the settlement was a joke and child care payments were sporadic, despite your ex’s substantial six-figure salary.  You took a sub-optimal job because it gave you flexibility to accommodate the children’s schedules. Predictably, your ex-husband re-married and continued to climb the corporate ladder with, of course, commensurate increases in salary.

You swore you’d never- NEVER! – tie the knot again.  Then, as fate would have it, years later you met #2- someone who made you feel unbelievably special and- bonus!- also liked kids.  After a brief romance and a small private ceremony, you finally felt you had found The One.  With his encouragement you went back to college, earned your Masters degree and found a much better job.  Life was good.  Very good.

A year after your youngest child headed off to college, you discovered that Husband #2 was living a double life: he had a whole other family in the next state where, conveniently, he often traveled on business.  You kicked him out of the house and immediately filed for divorce.

Devastated, you threw yourself into your work at a technology start-up, earning promotion after promotion, which enabled you to buy a modest condo.  You also received more than 500 shares of privately-held company stock.  When the firm went public, your stake turned into $400,000.

Now you’re in your mid-60s and thinking of retiring.  You want to travel, take those piano lessons you’ve put off for decades, visit your grandkids and well, just do as you damn please.

The letter that Social Security sent says your estimated benefit at “full” retirement age (66 in your case) is $1,400/month.  Lower than you expected.  The reason is that your Social Security benefit is based upon your 35 highest years of inflation-adjusted earnings. Though you made good money later in life, the time you took off when the kids were young and the low salary of your part-time job have offset this.

You realize that after subtracting your monthly Medicare premium and other basic living expenses, $1,400/month is not exactly going to support a lavish lifestyle.  In addition, if you apply for Social Security today, your benefit will be reduced because you’re a year shy of full retirement age. Still, you’re grateful to have it.

Your company stock was sold a few years ago and reinvested in a simple, diversified portfolio of mutual funds.  It’s now worth close to $500,000.  You’d like to avoid taking any withdrawals from your account unless it’s absolutely necessary.  This is your emergency fund. You don’t want to be a burden to your kids.

When you meet with your financial advisor to discuss your retirement budget, you’re surprised to learn that you have more options than you realize.

She explains that because you were married to each spouse for at least 10 years, you qualify for a “divorced spouse” benefit.  Since you enjoy your job, your advisor suggests you work at least until you are full retirement age (FRA) to start Social Security.  You then have the option to choose whether you would like to receive 100% of your own benefit ($1400) or the maximum divorced spouse benefit- half  the amount your ex is entitled to when he turns FRA.  Although you might feel you deserve it for what they put you through, you will not get a benefit based upon both former spouses- just the one that is higher.

After a visit to your local Social Security office, you find out that (no surprise) Ex-Spouse #1 has earned the higher benefit.  He will receive $2,700 when he turns full retirement age.

You are disappointed.  There’s no sense filing for a “divorced spouse benefit when your own will be $50/month more.

Thankfully, you are working with an advisor who understands the Social Security rules.  She recommends that you do exactly that: three months before your 66th birthday, she wants you to file for Social Security and state on your application that you wish to “restrict” your benefit to your maximum divorced spouse amount- $1,350/month.

A few months before your 70th birthday, she will remind you to contact Social Security again.  This time you will tell them that in the month you reach 70 you wish to drop your spousal benefit and switch to the one based upon your own earnings record.  For each year past full retirement age that you delay the start of your own benefit, it  increases 8% thanks to the “delayed retirement credit.” After 4 years (from 66 to 70), your own benefit will be a minimum of 32% higher- $1,848!

There’s more: If you manage to out-live him, when he dies you qualify for a “surviving divorced spouse” benefit, which is the same amount a widow(er) receives: 100% of the amount your ex was getting at the time of his death.

P.S. The same scenario applies to husbands.