Are you married, widowed, or divorced? If so, then you may be eligible to receive Social Security Benefits based on your spouse's or former spouse's work history even if you have also earned your own Social Security benefits.  But unfortunately, understanding and claiming these benefits can be very complicated.  And once you request benefits, the Social Security administration rarely lets you fix a mistake, even if that mistake means you miss out on thousands of dollars of income every year in retirement. So be sure to listen to this entire episode to make sure you have all of the knowledge you need to help to get the most out of your Social Security spousal benefits.

In this episode you will:

• You’ll discover how to know if you qualify for any spousal benefits
• If you’re married, you’ll learn how you and your spouse may want to coordinate the claiming of your benefits to maximize your lifetime income
• If you’re widowed, you’ll discover how widowed spouses have the most favored status when it comes to claiming Social Security benefits and the special strategies you can use to really boost your lifetime benefit amount
• If you’re divorced, we’ll reveal how to know if you can claim any benefits from your ex-spouse and if so what you need to know to get the most out of those benefits
• We are also going to reveal some special circumstances that if they apply to you, you need to be especially careful in your claiming strategies because some of the regular rules or strategies won’t apply to you.
• And you’ll also discover what the late Tonight Show host, Johnny Carson, can teach us about Social Security spousal benefits

The key moments in this episode are:

00:42 – Introduction to Episode Topic: Social Security Spousal Benefits

02:10 - Qualifying for Spousal Benefits

07:07 - Spousal Benefits for Married Couples

11:49 - Delayed Retirement Credits and the File and Suspend Strategy

15:35 - Understanding Spousal Benefits

19:10 - Deciding When to Claim Spousal Benefits

23:05 - Spousal Benefits for Divorced Spouses

28:25 - Spousal Benefits for Widowed Spouses

34:07 - Special Circumstances and Landmines

36:41 - Social Security Mistakes

37:57 - Additional Resources

38:53 - Next Episode Preview

 

Mentioned on the Show:

Underpaid, But Employed: How the Great Depression Affected Working Women

Divorced? See how to claim your Social Security benefit

The First Social Security Beneficiary

The Social Security Administration Website

Social Security Benefits for Spouses

 

Flow Charts:

Am I Eligible for Social Security Benefits as a Spouse?

Am I Eligible for Social Security Benefits as a Surviving Spouse?

Am I Eligible for Social Security Benefits If I Have Been Divorced?

 

Show Transcript:

Jim Uren: This is The Year You Retire podcast for people who want their first year of retirement to be right on the money. Your hosts are me, Jim Uren and John Bever, CERTIFIED FINANCIAL PLANNER™ professionals with Phase 3 Advisory Services. Retirement is one of the happiest times of life, but getting the most out of it requires you to be properly prepared.

Listen along as we explore the financial topics, tips, and strategies that will help you make your first year of retirement your best year yet. Now let's get planning.

John Bever: Welcome to episode 13. Today we will be exploring Social Security Spousal Benefits. Are you married, widowed, or divorced? If so, then you may be eligible to receive Social Security Benefits based on your spouse's or former spouse's work history even if you have also earned your own Social Security benefits.  But unfortunately, understanding and claiming these benefits can be very complicated.  And once you request benefits, the Social Security administration rarely lets you fix a mistake, even if that mistake means you miss out on thousands of dollars of income every year in retirement. So be sure to listen to this entire episode to make sure you have all of the knowledge you need to help to get the most out of your Social Security spousal benefits.

Well, Jim, it's great to see you again today. And I'm excited about this topic. I think that this is a really great planning tool, but why are you excited about this topic?

Jim Uren: Well, I like this topic because it affects what 99 percent of all the people that we meet? So this is an important issue for a lot of people. And we've seen a lot of people who've come to us already having made some of these decisions that we wish they hadn't have made. And we've also been able to help quite a few people who hadn't yet done anything to really maximize these benefits. So this is an important topic for just about everybody.  So I'm excited about it.

John Bever: All right. So let's get into this. We're discussing Social Security spousal benefits, not your own primary retirement benefits, but spousal benefits. So Jim, will you give us an outline of what our listeners will get out of this episode?

Jim Uren: Certainly. So in this episode,

• You’ll discover how to know if you qualify for any spousal benefits
• If you’re married, you’ll learn how you and your spouse may want to coordinate the claiming of your benefits to maximize your lifetime income
• If you’re widowed, you’ll discover how widowed spouses have the most favored status when it comes to claiming Social Security benefits and the special strategies you can use to really boost your lifetime benefit amount
• If you’re divorced, we’ll reveal how to know if you can claim any benefits from your ex-spouse and if so what you need to know to get the most out of those benefits
• We are also going to reveal some special circumstances that if they apply to you, you need to be especially careful in your claiming strategies because some of the regular rules or strategies won’t apply to you.
• And you’ll also discover what the late Tonight Show host, Johnny Carson, can teach us about Social Security spousal benefits

 

John Bever: Jim. I'm really looking forward to hearing about Johnny Carson. That sounds good.  But you know, we also have an episode, “Getting the Most out of Social Security.”  That's one of our podcasts. We have that available for you to listen to as our listeners. This is episode four that you'll be listening to, to get the most out of your Social Security. And in that episode, we cover more of the basics of Social Security, such as:

• How you qualify for benefits
• How you get an estimate of your benefits
• How much can you earn from working while receiving your benefits
• How the annual inflation adjustment works
• And the dangers of the tax torpedo once you start receiving benefits

 

But, yeah, really interested about that Johnny Carson thing, Jim.

Jim Uren: We'll get there soon.  But yes, we did cover a lot of the basics in that episode four.  And so we don't have time to cover all of those here so it's worth a listen if you didn't listen yet, because it'll fill in a lot of the details. 

But first, John, it is trivia time. So what, for our listeners, was the amount of the very first Social Security retirement check that was paid out?  Was it…

1. Less than $30?
2. Less than $40?
3. Less than $50?
4. Less than $60?

John Bever: Well, I don't know the answer.

Jim Uren: Well, it's interesting. The very first retirement check ever issued by the Social Security administration, and of course it was an actual check, was in the amount $22.54. So the answer is the first option. Less than $30.

Now that check was issued to Ida May Fuller of Vermont on January 31st, 1940.  And interestingly, Ms. Fuller was actually never married. So she was never eligible for any spousal benefits, even though that's the topic of this episode. But another interesting fact about her, John, was that she apparently was a classmate of Calvin Coolidge, the 30th president of the United States. So my guess is she never went to her class reunion because you can't really outdo that.

John Bever: Right. Right. Okay.

So speaking of spousal benefits, Social Security has always included benefits for spouses, even spouses who never had a formal job and paid into Social Security, right?

Jim Uren: Yes. So spousal benefits were a critical component of Social Security when it was created because so few women were officially employed at that time.  So even though the great depression led a significant increase in the number of married women joining the workforce out of necessity, when that first Social Security check though was issued in 1940, there were still only about 15% of married women who were actually employed outside the home.

And of course, even those that were employed were generally limited to a handful of professions that were considered appropriate for women.  And women, of course, were paid far less than men. So Social Security, when it was created, it needed a mechanism so that in retirement, a household with, let's say a married couple, would be able to receive some extra income than a household with, let's say just a single man.

And of course there also needed to be a survivor benefit to provide for a spouse after death, but we will certainly get to that topic shortly.

John Bever: Okay, so when does a spouse become eligible to receive spousal benefits from Social Security? Let's start with the spousal benefits for couples who are married.

Jim Uren: So there are two main requirements. First, your spouse must file for and start receiving his or her Social Security retirement benefits, which of course obviously means that they would need to have met all of the qualifications that we've covered in episode four to qualify for Social Security.

But number two, you also, as the spouse receiving the spousal benefits must meet that age requirement, which is at least be 62 years of age in the case of a currently married couple.  There is an exemption that exists if you happen to be a spouse caring for a disabled child or a child under 16, but generally you're going to need to be at least 62 before you turn on your spousal benefits,

John Bever: Right. And it's important to recognize that there has been a change to that first point. Your spouse must file for and start receiving their Social Security retirement benefits. That was not the case many years ago and so some people are still maybe thinking about the old way.  They know what their parents did. No, it's very important that the spouse must file for and start receiving his or her Social Security retirement benefits.

So Jim, how do you know the amount of the spousal benefit for a married couple?

Jim Uren: To determine your spousal benefit, you would actually look up your spouse's regular Social Security retirement benefit at their full retirement age, which would be listed on their Social Security statement.

So typically, your spousal benefit would be 50% of that amount, assuming that you start receiving your spousal benefits at your full retirement age. Now your full retirement age is likely somewhere between age 66 and 67, depending on when you were born. And that is a pretty easy thing to Google to find out.

John Bever: Right.  However, you can claim benefits before your full retirement age, right? So how would you explain how that works?

Jim Uren: Yes. You can start receiving Social Security benefits as early as age 62, if you're still married. That is true for spousal benefits or traditional benefits that are based on your own work history.

However, it is important to know that starting benefits prior to your full retirement age results in a permanent, that is a lifetime, reduction in those benefits. So the earlier you start taking your benefits, the greater the reduction.

For example, let's say that we've got a husband, we're going to call him Fred, whose benefit at his full retirement age of 67 would be $3,000 per month.  Now, Fred could start receiving benefits when he reaches age 62, but instead of receiving $3,000 per month, he would only actually receive About $2,100 per month. Now that's about a 30% reduction.  Now, if he starts benefits at age 62, Fred certainly would be receiving benefits five years earlier, but that 30% penalty is going to continue to apply to his benefits for the rest of his life.

Spousal benefits work in a similar manner. For example, let's say Fred's wife, Ethel, was never employed. So she does not qualify for any Social Security retirement benefits based on her own work record. She, of course, would still qualify for spousal benefits based on Fred's work history.

Now, if Ethel waits until her full retirement age to claim spousal benefits, she would receive about $1,500.  Again, half of Fred's $3,000. However, if she were to start her benefits at age 62, which she could, she's only going to receive about $980 per month. That's a 35% reduction from what she would get if she waited until her full retirement age.

John Bever: Okay. So what you're saying is that even though Fred may claim early, if she doesn't, if she waits till her full retirement age, she's not subject to that penalty, so to speak.  Is that right?

Jim Uren: That is correct.

John Bever: Okay. So now let's assume the Mertz's, excuse me, Fred and Ethel, because this is fictitious here, right? Okay. Fred and Ethel are the same age. If they both wait till age 67, their combined Social Security benefits would be $4,500. It would be the $3,000 per Fred and the $1,500 for Ethel.

Okay, but if they both start as early as possible, that would be age 62, then their combined benefits would only be $3,080. $4,500 versus $3,080. Is that correct?

Jim Uren: That is correct.

John Bever: Okay. So now in episode four of this podcast, we discussed how you also have the ability to delay starting your Social Security benefits all the way to age 70.  And by doing that, you can actually earn delayed retirement credits which will increase your monthly benefit amount. But it's important for listeners to know that spousal benefits are not eligible for delayed credits. So would you please explain that?

Jim Uren: Yes, so let's use our current example. Fred could wait till age 70 to claim his retirement benefits and if he does so, his monthly benefit would actually increase.  It would go from $3,000 to $3,720 a month. That is a 24% higher payout than if he just started his benefits at his full retirement age of 67. And again, that bonus will also last for the rest of his life.

Now, remember, Ethel's spousal benefits at 67 was going to be $1,500, and it does not benefit from earning any delayed retirement credits, as you mentioned, John.  So if she waits until 70 to start her benefits, she will still only be collecting $1,500 a month. Now, this is true whether you're collecting spousal benefits as a married spouse, a widow, or a divorced spouse. There's never an advantage to delay collecting spousal benefits beyond your full retirement age.

John Bever: So to summarize, those delayed credits only apply to your own retirement benefit and do not apply to spousal benefits.

Jim Uren: Correct.

John Bever: All right. And that gets tricky because Ethel cannot claim any spousal benefits until Fred claims and receives his benefit, right? So if they are the same age, for every month Fred delays past 67, Ethel would be giving up her $1,500 per month.

Jim Uren: That's correct. And so that may not make sense in some cases, right, for Fred to delay his benefits. Because for Fred and Ethel, it would depend on a variety of factors to decide whether or not they want to delay Fred's benefits. Those factors include things like longevity, other sources of income, risk tolerance, etc.

John Bever: So I'm hearing there's a real benefit to using our Social Security analysis software to help us find that optimal way of claiming. Is that right, Jim?

Jim Uren: That can be very helpful.  Absolutely. 

John Bever: All right. Now, under the old rules, it used to be that Fred could have a strategy called file and suspend. I referred to that a little earlier.  So that's where he would have started and then immediately suspended his benefits so that Ethel could start claiming her spousal benefits while Fred waited until later to claim his own retirement benefits at a higher amount. But that is no longer an option, correct?

Jim Uren: That is correct. As you alluded to, the file and suspend strategy was eliminated during the Obama administration.  So that is no longer an option, but it was really nice while it lasted. So a spousal benefit for a currently married spouse can only be paid out if the spouse with the primary benefit is also receiving benefits as well.

John Bever: Okay. You didn't quite catch that. You're not quite sure back up the podcast, listen to it again.  Because that's a really important point to keep straight.

Now let's complicate things a little bit more. What happens if both spouses have employment history that qualifies them for their own Social Security retirement benefit?

Jim Uren: That does get a bit more complicated, but that is actually a much more common scenario for most married couples today.

Here's what you need to know. Unfortunately, you can't double dip. You cannot claim both a benefit based on your work record and a spousal benefit based on your spouse's work history at the same time. So, for example, if Ethel was eligible for $1,000 a month based on her work history, she could not collect that $1,000 and collect another $1,500 spousal benefit every month based on Fred's work history.

Rather, what happens here is that when Ethel goes to file for Social Security retirement benefits, they're going to compare her personal benefit to her spousal benefit and they basically give her whichever's the highest benefit.

Now, in this case, her spousal benefit of $1,500 is higher than her personal benefit of $1,000 and so Ethel would be collecting still $1,500 a month.  Even though she had a work history, it just doesn't matter because she's still going to collect based on Fred's work history.

John Bever: And here's why it's important to have a little bit of a basic understanding of this, because even though Social Security does a good job, they do sometimes make mistakes.  And we have seen where that has happened. So it's important, even though you might not quite track what's going on here, get the sense of what's happening here so that you can at least have a little bit more intelligent conversation with Social Security when you go to claim benefits.

Now let's go back to the scenario where Fred delays to age 70.  Assuming Fred and Ethel are the same age, Ethel can start collecting benefits based on her own work history before Fred starts receiving.  Is that right?

Jim Uren: Yes. So let's say Fred does delay until 70, but Ethel wants to collect at her full retirement age of 67. At 67, she would only be eligible to receive a benefit based on her own work history, since Fred has not yet started receiving his benefits.  So Ethel would start getting that $1,000 per month at 67. Again, we're assuming they're the same age for this illustration. However, once Fred does turn on his own benefits and starts receiving them at age 70, Ethel's benefits would now jump up to that full $1,500 a month because she would then become eligible for a spousal benefit.

I will add, however, if Ethel were to start her own benefits prior to her full retirement age, as we previously discussed, a penalty would apply and that penalty would still apply once her spousal benefits kick in as well. So her benefits would still go up once Fred starts his benefits, but she would not be entitled to the full $1,500 per month because she started receiving her own benefits before her full retirement age.

John Bever: Right, so that's referred to as the deemed filing rule.

Jim Uren: That is correct.

John Bever: And you know, it's important, even if you, the spouse have a really, really small benefit and this is your situation, it's okay to go ahead and start claiming your own retirement benefit. If you're full retirement age and your spouse is delaying for those delayed credits, even if it's just a couple hundred dollars a month, you're, you're not going to hurt yourself by claiming as long as you are full retirement age.

All right, so that's a good overview of how Social Security spousal benefits work for married couples. But how do married spouses decide the best time to start receiving benefits?

Jim Uren: So this is an even more complicated question. So first, I would just give you a broad answer, but then I'm going to give you a good rule of thumb.

Broadly speaking, what we would encourage is the decision of when each spouse should start claiming Social Security really should be made as part of an overall financial plan, because there are a lot of moving factors that can influence that decision. So for example, that might be your health and family history, your other available financial resources, your investment risk tolerance, your tax situation. On a previous episode, we talked about Roth conversions if you want to be doing Roth conversions.  I mean, there's a lot of reasons that can affect when you should do the timing of Social Security.

And that said, you mentioned too, John, that we've got a lot of tools at our disposal. Like our software that helps us recommend to a client some optimal times to do that.  So ideally that's the best situation.

Now that said, for many of the types of clients that we work with, we often do advise that the spouse with the highest benefit delay receiving that benefit until age 70 in order to maximize the delayed retirement credits so that they can receive the highest benefit possible.

Now that usually produces the best results in a financial plan assuming at least one of the spouses does live to their normal life expectancy. This is due in part because when one of the spouses dies, this is a key point too to understand, the surviving spouse gets to continue to receive the higher of the two benefits. Unfortunately, they can't continue to receive both, but they will receive the highest of the two. And so delaying the highest of the two benefits really does help provide some extra protection to that surviving spouse because they get to keep that benefit that took advantage of the delayed retirement credits.

But again, there are a lot of exceptions to this rule of thumb so you do want to be careful.

John Bever: That is so true, Jim, on the rule of thumb, because there are so many moving parts to retirement. One of the reasons why we are actually doing all these podcasts, because there's so much to consider.

So we've got spousal benefits.  We also have retirement benefits.  Your own benefits based on your own work history. Those are your retirement benefits. Spousal benefits are based on your spouse's work history. And the most that you can receive in a spousal benefit is one half of your spouse's benefit. But that half that you receive is only based on what your spouse is actually receiving if they claimed at their full retirement age or earlier.

So what you have to be careful of is to not wait and say, “Well, I'm going to get a higher spousal benefit if I delay to age 70.”  Because as you said, Jim, the spousal benefits do not benefit from delayed credits, right? They must be claimed at full retirement age because there's no benefit to delaying.

Now for this, it's really helpful to give us a call and schedule a discovery call because we can even help you with questions to ask Social Security when you go in. Even if you're not ready to go in for a full financial plan, we can give you some ideas of what you need to be thinking about when you come in for a discovery call.  You can call us, we can do it online, you can come in in person, and any of those ways.

All right, Jim. So now let's discuss divorced spouses. Under certain situations, Social Security retirement benefits can be paid to divorced spouses, but not all divorced spouses. So tell us how that works.

Jim Uren: So there are a number of requirements that need to be met in order to receive Social Security spousal benefits based on your ex spouse's work history.  Number one, your marriage must have lasted for at least 10 years. If it didn't hit 10 years, you cannot receive any spousal benefits, period. And so occasionally we'll find someone filing for divorce. If you've been married nine years or nine and a half years, sometimes it makes sense to delay the finalizing of that divorce till after you've hit that 10-year mark.

Number two requirement is that you cannot, cannot be remarried.  If you are remarried you give up any rights to the benefits based on your ex-spouse, but of course you certainly would be entitled possibly to spousal benefits from your current spouse, as we had just previously discussed.  But you would no longer be able to claim benefits on an ex-husband or ex-wife.

Number three requirement though, is both you and your ex must be at least age 62 or older.  Again, early retirement penalties can apply if you start at 62 compared to your full retirement age.  But you both must be of that age, 62 or older.

John Bever: Okay, so if both of you meet those requirements, then how will the amount of the benefits be determined?

Jim Uren: The amount of the benefits works the same way as it did for a married spouse. So a divorced spouse who meets all of those necessary requirements we just mentioned would be eligible to receive about 50 percent of their ex-spouse's full retirement benefit.  And just as in the case of a married spouse, you would only receive half of your ex-spouse's benefit if it was more than the benefit you would receive based on your own work history.

Now, the one difference though, for a divorced spouse, is that you do not need your ex-spouse to have started receiving benefits before you can start receiving your spousal benefits. That's nice. You don't have to coordinate with your ex like they require you to do with a current spouse. They just need to be eligible to start receiving those benefits.

John Bever: All right. So that means your ex-spouse can't stick it to you by waiting and waiting and waiting.

Jim Uren: Exactly.

John Bever: Okay, but what if your ex-spouse is married and has other previous spouses that would qualify for spousal benefits?

Jim Uren: Surprisingly and encouragingly for a lot of divorced spouses, it doesn't matter.  And it doesn't actually reduce your spousal benefits or even the spousal benefits of other exes or spousal benefits of your ex's current spouse.

So, okay, I know that was a little bit confusing. This is where John, you've been waiting for it, we're going to talk about Johnny Carson.

John Bever: All right, let's go.

Jim Uren: Johnny Carson was married four times over the course of his life. Of his first three marriages, two of those did last longer than 10 years. And he was actually married to his fourth wife at the time of his death.

Now, let's assume that Johnny had the same full retirement age benefit as did Fred in our previous example. So that's $3,000 a month. Assuming everyone meets the age requirements and we're just going to assume that they all turned on their benefits at their full retirement age. You could have a situation where Johnny is receiving $3,000 per month.  His first wife is receiving $1,500 a month. His third wife is also receiving $1,500 a month. And his current wife is also receiving $1,500 a month. So that means Social Security would be paying out $7,500 every month based on the work history of just one man.

John Bever: Is that why Social Security is running out of money, Jim?

Jim Uren: That's right. Thankfully, it's an extreme example, but it does show that as a divorced spouse, you don't have to worry about your benefits being reduced because your ex gets married or divorced again, et cetera. You're still entitled to half of your ex-spouse's full retirement age benefit. Of course, as long as you meet the other requirements.

And I will say, I get asked this sometimes, “What if I was married two times and divorced two times?” Well, if both of those marriages lasted 10 years or longer, you actually get to choose between your two ex-spouses. And obviously you choose the one that would generate the highest benefit.

John Bever: Don't get both?

Jim Uren: Don't get both.

John Bever: Okay. Let's go on to talking about spousal benefits for widowed spouses. These spousal benefits, they're referred to as survivor benefits, but they are different and treated differently than that of a divorced spouse. So what is the difference, Jim?

Jim Uren: First of all, one of the differences is that a widowed spouse can actually collect those survivor or spousal benefits as early as age 60. Now that's two years earlier than any other situation. So if you're currently married or divorced, you know, you can only start at 62.  Widowed spouses can start as early as 60.  However, penalties still apply whenever you start benefits earlier than your normal retirement age so you need to be aware of that.

Second, as I mentioned before, a widowed spouse is eligible to receive 100%, not just 50% of their deceased spouse's benefit. Now that's going to vary a bit based on a variety of factors, but a widowed spouse becomes eligible to receive all of the deceased spouse's benefit.

So if let's say, like Ethel and Fred, if you're receiving $1,500 a month and your spouse is receiving $3,000 a month and he dies, you will no longer receive your $1,500, but you do get to now receive the full $3,000 a month for the rest of your life.

Third difference is that a widowed spouse can claim a survivor benefit, even if they get remarried.  Remember a divorced person cannot remarry that shuts it down. However, the catch is if you're widowed, you have to wait until after the age of 60 to get remarried. And doing so, that would usually result in a higher benefit. And that's because, if you can get a 00% of your deceased spouse's benefit, that's likely greater than 50% of your current spouse's benefit.  And of course, you'd have the option of claiming a benefit on your own work history as well if that resulted in a higher benefit yet.

John Bever: Right. And widowed spouses have a really unique option when it comes to claiming survivor benefits versus benefits that are based on their own work history. How does that work, Jim?  Explain that.

Jim Uren: Yes. Widowed spouses who are eligible for a survivor benefit and who are also eligible for a benefit based on their own work history have a really unique option where they can start one benefit and then switch to the other benefit at a later time without penalty, without penalty. And that can be extremely powerful.

For example, let's say that a widow has a good size benefit based on her own work history and a fairly modest survivor benefit, which of course would be based on her deceased husband's work history. She would likely want to actually start receiving her widow's survivor benefit as soon as she's retired.  Let's say she's 65. (She could be, as I said earlier, as young as 60.)  She could start receiving that survivor benefit and then wait until age 70 to start receiving the benefit based on her work history. Now, the benefit of that is that way, she's going to be earning the maximum amount of delayed retirement credits so that her benefit at age 70 is as high as possible.  But again, this is without penalty.

Remember we talked about that deemed filing rule earlier. It doesn't apply here. So even if she were to start benefits, let's say at 60 as a widow, she would have basically early withdrawal penalties on that. However, when she switches to her new benefit at age 70 in this scenario, there's none of those penalties that apply any longer.  She gets the maximum benefit allowed under law.

But if her survivor benefit, let's say in this scenario, the opposite, if her survivor benefit happens to be significantly larger than the benefit based on her personal work history, she may want to do the opposite. She may want to start claiming her personal benefit first when she retires and then switch to the survivor benefit when she reaches her full retirement age. Again, because you don't delay those until 70 because they don't go up as we already mentioned.  But she would switch to her survivor benefit at her full retirement age, whereby she can claim without any penalties.

Now, in either case, it's super powerful because basically you get paid monthly while you wait for your bigger of the two benefits to reach its maximum amount and then you make the switch and you start bringing in the highest possible income. So even though a lot of these strategies for currently married spouses have been taken off the table, the Social Security administration and Congress has preserved this really nice feature for people who have been widowed.

John Bever: Right. And this is why it's really important to work with a qualified advisor regarding this, not just any advisor, but one that has the expertise to actually analyze this for you.  I'm thinking of a case right now that was this very situation. Her variables were, do I continue to work or not work? The widow benefit was pretty close to her own retirement benefit. And so just to think of which one was best, wasn't good enough. We actually had to run the numbers to determine her best claiming strategy along with her work. And we were able to do that. And of course she was really not getting that information from Social Security because they won't help you strategize.  That's not their role.

All right, last topic on spousal benefits. What special circumstances, if they apply to someone, should they be extra careful about before deciding on a Social Security claiming strategy? In other words, what are some of the landmines there, Jim?

Jim Uren: Yes. As you mentioned, almost everyone could benefit from working with a knowledgeable financial planner before making this decision, because as we talked about, you really can't undo it. However, in some situations, you need to be a little extra careful. A few that come to mind include, the first one is, if you or your spouse are going to be receiving a pension from a job that was not covered by Social Security.

So typically this would apply to some state and local employees. For example, public school teachers in Illinois do not pay into Social Security, but are instead covered by what's called the Teacher's Retirement System or TRS. Now, if this situation fits you, you need to be extra careful because the information that's actually on your Social Security statement, it's probably not accurate.  And the normal rules for receiving spousal benefits do not apply either if you die or if your spouse dies. And so you need to do some extra research or work with a knowledgeable financial professional before you make any of these decisions. So that's the first one.

Second one that comes to mind, if there's a substantial age difference between you and your spouse, or even I would say a substantial health difference, you may want to employ some non-traditional strategies. We would maybe do things a little different in your situation than we might otherwise in a more typical scenario.

The third situation that comes to mind, again, not very common, but it does happen nowadays more often. If you will be above the age of 62, and you still have dependent children at home, that can really change that cost benefit analysis calculations because you can receive additional monthly benefits if you're caring for your children.

So, for example, if Fred and Ethel still had a child that they were caring for, they might be able to get more than that $4,500 a month between the two of them. And so even though they might get a penalty by starting earlier, they may actually do better starting earlier while there's still some children at home.  That's just one example. So some of this traditional Social Security advice may not apply if that's your situation.

Now, if any of these situations apply to you, again, you just need to be extra diligent in determining the best claiming strategy for you and your family.

And I do want to say just one other thing before we wrap up.  You mentioned this, John. Social Security is not infallible. They make mistakes. I've seen this, especially for widows. There was actually a report that Social Security put out by their own auditors that showed a significant amount of the time the widows were given really bad advice.

I remember one time I had a widowed client.  We set up her plan, sent her to Social Security. She went in and they told her you can't do what you want to do. And I literally went with her to the second appointment, ready to argue, had my sleeves rolled up, ready to fight. The next person we got, he's like, “Oh, absolutely.  Not a problem. We'll do that.” So I didn't have to argue, but just going back a second time, we got a more knowledgeable person and we were able to do what she needed to do.  So you have to be, you have to be careful.

So that wraps up our discussion on Social Security spousal benefits. Hopefully this has been helpful to you. And as John mentioned, if you have any questions, please feel free to reach out to us. You can schedule a call. You can shoot us an email. Happy to help in any way that we can.

John Bever: All right. So Jim, where can listeners go for some additional information and resources on this?

Jim Uren: Well, there is of course, always a lot of information on the Social Security administration's website at ssa.gov. Good amount of information there. Certainly can be overwhelming. 

But we also have a variety of resources for you on our site. We have several flowcharts that can help you determine if you're eligible for benefits as a spouse. We've got one for surviving spouse, and we've got a flowchart for someone who's been divorced. So we've got three flowcharts.  Pick the one that works best for you. Those are all on our website. We also have our show notes for this episode and a transcript of this episode.  All at the same spot for any of those resources, just go to phase3advisory.com/podcast. That's phase3advisory.com/podcast. And you'll be able to find those resources.

John, before we get to our gratitude segment, though, would you please tell us what is going to be on our next episode?

John Bever: Well, it's going to be one of my favorite topics talking about taxes.  I love to disinherit Uncle Sam. We will be focusing on capital gains taxes. And the nice thing about capital gains taxes is if you have long term capital gains, they get taxed at a lower rate. We'll explain that in that podcast.

Jim Uren: Great. I am looking forward to that topic because capital gains, as you know, are a big expense in retirement for a lot of people and any strategy to help reduce that tax bill is certainly going to be helpful.  So be sure to make sure you follow or subscribe to this podcast, wherever you listen, so you don't miss out on that next episode.

So John, what are you thankful for today?

John Bever: Well, I have to tell you, I am thankful for Social Security because when I look at my parent’s situation that are now dearly departed from this earth, uh, a good portion of their retirement income was Social Security.

How about you, Jim?

Jim Uren: That is also my list for today. I am thankful for Social Security as well. It is far from perfect. It needs a lot of fixes, but overall, history wise, it's been responsible for keeping millions of people out of poverty during their retirement years. And of course, it helps people with other things.  Like if you become disabled.  It also provides survivor benefits for younger families who maybe have a parent who dies in their younger years. So I am thankful that we have some way of providing for people in these difficult situations. That certainly wasn't the case a 100 or 200 years ago. Very thankful.

Well, that is it for this episode of the Year You Retire podcast. Thank you for joining us and be sure to listen to the following disclaimer and contact information.

Disclosure: The views expressed in this podcast are not necessarily the opinions of Phase 3 Advisory Services and should not be construed directly or indirectly as an offer to buy or sell any securities or services mentioned herein.  Unless otherwise specified, show guests are not securities licensed or affiliated with Phase 3 Advisory Services or Osaic Wealth.   Investing is subject to risks, including loss of principal invested. Past performance is not a guarantee of future results.

No strategy can assure profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should only be relied upon when coordinated with individual professional advice.  Securities offered through Osaic Wealth, Inc. member FINRA/SIPC.  Additional investment. and insurance advisory services offered through Phase 3 Advisory Services Limited, a Registered Investment Advisor.

Osaic Wealth is separately owned and other entities and or marketing names, products or services referenced here are independent of Osaic Wealth. Phase 3 Advisory Services is located at 1110 West Lake Cook Road, Suite 265 in Buffalo Grove, Illinois 60089. Our phone number is 847-520-5545. For additional information, visit our website at phase3advisory.com.