We emphasize SITUATIONAL SOCIAL SECURITY in the NSSA® Certificate program, as all of your clients are UNIQUE. Your clients may be single, married with wide age differences, married with narrow age differences, divorced, surviving spouses, eligible to file a Restricted Application, public employees, etc. Advisors, (YOU), must understand the issues and questions that related to every unique client. You are your clients’ trusted advisor and must understand Social Security. Advisors attending the National Social Security Advisor Certificate program change their mindset and become PROACTIVE. NSSA® Advisors do not wait for clients to bring up the topic Social Security. NSSA® Advisors are confident in their knowledge, and actually BEGIN THE DISCUSSION. Which type of advisor are you? Hesitant to discuss SS? Confident in your understanding of SS? Proactive?
In this installment of Situational Social Security, we will discuss a very powerful SS strategy that is available to married couples when the spouses are over Full Retirement Age and have not begun their retirement benefits. I have discussed this strategy with advisors and clients several times this week.
Retroactive Benefits – Clients beginning Social Security benefits after reaching Full Retirement Age can apply for six months of retroactive benefits. Your client, Samantha is eligible for Social Security benefits of $2,000 per month at age 68. Her PIA is $1,724. Assume today is November 21, 2020 and that today is Samantha’s birthday! Samantha is thinking about beginning her benefits this month, November, 2020. Samantha’s husband, Robert, also turns age 68 today. What a coincidence! Robert’s Social Security benefit at age 68 is $2,500. Robert’s PIA is $2,155. Neither Samantha nor Robert have filed for benefits.
Clients beyond FRA may elect six months of retroactive benefits. Six months of retroactive benefits are available upon reaching FRA. However, the six-month period cannot precede Full Retirement Age. Thus, an individual, age 68 can elect six months of retroactive benefits. An individual age 66 and 3 months can only receive three months of retroactive benefits. Retroactive benefits are paid in a lump sum.
Consider the following strategy for Samantha and Robert:
1) Samantha files for benefits effective six months ago, May, 2020. Samantha receives a lump sum payment of $11,304! ($1,884 (SSB with 14 months of DRCs) 6). Her benefit will increase to $1,930 effective 1/2021 to include the DRCs earned in 2020.
2) Robert is eligible to file a Restricted Application and receive a spousal benefit of $862 ($1,724*.5). Robert was born November 21, 1952. Robert files the Restricted Application also effective May, 2020 and receives a lump sum payment of $5,172
3) Robert switches to his own retirement benefit at age 70 and receives Social Security benefits of $2,845.
The above strategy provides for combined lump sum benefits of $16,476.
Even if your clients are not able to file a Restricted Application, it may still make sense to consider the six months of retroactive benefits even though DRCs associated with these months will be lost.
We emphasize SITUATIONAL SOCIAL SECURITY in the NSSA® Certificate program, as all your clients are UNIQUE. Your clients may be single, married with wide age differences, married with narrow age differences, divorced, surviving spouses, eligible to file a Restricted Application, public employees, etc. Advisors, (YOU), must understand the issues and questions that relate to every unique client. You are your clients’ trusted advisor and must understand Social Security.
My partner, Jim Blair, worked for the Social Security Administration for 35 years and retired in January 2010. Jim and I began our journey together at that time to help folks to understand and maximize their Social Security benefits. In January 2013, we created the National Social Security Advisor Certificate program. To date, 2,500 advisors across the country have earned the NSSA® certificate.
In this installment of Situational Social Security (SSS), we will discuss Social Security benefits relating to divorced individuals. First, the rules for YOU to collect off an ex-spouse:
1) You must be single
2) You must be at least age 62
3) Marriage duration – ten continuous years
4) Your spouse MUST be COLLECTING a RETIREMENT or DISABILITY benefit if divorced for less than two years.
The requirement that your ex-spouse be receiving a benefit does not apply if the following conditions are met as “Independently Entitled Divorced Spouse” status will apply:
1) You and your ex are at least age 62
2) You are single
3) Marriage duration – ten continuous years
4) You and your ex have been divorced for at least two years
Restricted Application for Ex-spouse – Tom came in last week and met with Jim Blair. Tom was married to Alice for 25 years and have been divorced for 5 years. Additionally, Tom was born January 25, 1952. Tom told Jim, that Alice filed a Restricted Application and is collecting a spousal benefit off his work record. Tom asked Jim if he can also file a Restricted Application. Tom is eligible to file a Restricted Application as he was born by the MAGIC date of January 1, 1954 and the requirements stated above have been met.
Filing a Restricted Application will allow Tom to receive a spousal benefit while his own retirement benefit earns Delayed Retirement Credits. This is a very powerful strategy. Do you want to supercharge this strategy? Tom is also eligible to file The Restricted Application effective six months ago, (May), receiving a lump sum check for SIX months of retroactive spousal benefits. WOW!!!! Tom better file the Restricted Application by the end of the month risk losing a month of spousal benefits.
Impact of Marriage – One of the requirements to collect off an ex-spouse is that the ex-spouse seeking to collect must be single. Mary come in a couple months ago. Mary has been receiving Social Security off her ex-husband, Sid, for several years. Mary plans on marrying Bob in March of 2022. Mary is concerned that her Social Security benefits off Sid will be impacted if she marries Bob. Her friend, Harold, told Mary that her benefit off Sid will continue after she marries Bob. Mary is not sure of Harold’s advice! Mary is correct as she must be single to collect a spousal SS benefit off Sid. Harold is wrong again! Upon marrying Bob, Mary’s benefits off Sid will terminate. However, Mary is eligible to collect a spousal benefit off her new husband, Bob if he is receiving a retirement or disability benefit. Generally, Mary would have to wait until married to Bob for a year. This requirement does not apply if Bob is collecting a Social Security benefit upon marriage.
Amount of Benefit off of Ex-Spouse – we will cover the calculation of spousal benefits, (current or divorced), in greater detail in another installment of Situational Social Security. For now, pleases understand that a spousal benefit is equal to 50% of the other spouse’s Full Retirement Age benefit, or Primary Insurance Amount, PIA. For example, if my PIA is $2,000 then my ex-spouse is eligible for $1,000 at her Full Retirement Age. If she takes early, the spousal benefit will be reduced for age. Spousal benefits do not increase after Full Retirement Age. As indicated, I will discuss the spousal benefit calculation in greater detail in an additional installment of SSS.
Additional strategies relating to ex-spouses will be discussed in the next installment of Situational Social Security.