By Chris Chen, CFP®
In this article, we explore how divorce and subsequent circumstances can significantly affect Social Security benefits and retirement income for divorced individuals. Having previously looked at the basics of Social Security for divorced persons, we now focus on what occurs when an ex-spouse passes away and the implications of pensions on Social Security benefits.
Social Security Benefits When Your Ex Dies
Mike and Marie are 66 and have been married for over 10 years before divorcing. Since Marie is single and has not remarried, she qualifies for a divorced-spouse retirement benefit based on Mike’s record, regardless of whether Mike has filed for benefits.
If Mike has passed away, Marie is eligible to receive a divorced-spouse survivor benefit based on Mike’s record if she remains unmarried or if she remarried after age 60. Moreover, Marie’s benefit will amount to 100% of Mike’s Primary Insurance Amount (PIA), which is the amount Mike would have received at full retirement age. Therefore, if Mike dies, Marie’s retirement benefits are limited to this full retirement age amount.
In a situation where Mike and Marie have married, divorced, remarried, and then divorced again, the durations of their marriages can be combined to meet the 10-year minimum requirement for benefits. For example, if they were originally married for seven years, subsequently remarried, and then divorced again after three years, they satisfy the requirement for a total of 10 years of marriage.
Pension Repercussions on Social Security
Consider the case of Jill and Jack. Imagine Jill had no Social Security record of her own and was eligible for half of Jack’s PIA of $3,000. Now, if Jill worked for an employer that does not participate in the Social Security system, her eligibility for Social Security benefits may be impacted.
For instance, if Jill was a teacher eligible for a state pension, the Government Pension Offset (GPO) rule applies. Consequently, her divorced-spouse Social Security benefit would be reduced by two-thirds of her pension amount. If Jill receives a $3,000 monthly pension, her $1,500 divorced-spouse benefit could be entirely reduced to zero, depending on the pension size.
If Jack were to die, Jill would then be eligible for a divorced-spouse survivor benefit, which after the GPO reduction, would provide her with $800 monthly.
Furthermore, if Jack also qualifies for a pension from a non-Social Security paying entity, the Windfall Elimination Provision (WEP) may affect the benefits for both Jack and Jill, reducing their payments.
What Does It All Mean?
In summary, when Jack and Jill divided their assets 50-50, Jack was set to receive a higher Social Security benefit after delaying his claim. While his benefit may increase, Jill’s benefit remains stagnant, leading to long-term financial disparities.
The potential difference in income, generated by various factors such as Social Security and pension benefits within the context of a divorce, underscores how critical it is to understand these financial implications during divorce proceedings.
Last Words
The financial gap between Jill’s and Jack’s total monthly incomes could amount to an excess of $2,500. Over 20 years, this could easily exceed $600,000. With the possibility of Social Security cost-of-living adjustments (COLA), this discrepancy could soar beyond $875,000.
While the courts cannot directly resolve Social Security-related issues, mediation efforts might enhance equitable financial settlements. Professional assistance from a divorce financial planner may provide invaluable support in navigating these complex scenarios.
Disclaimer
This article reflects the opinions of Chris Chen, CFP®, and is not reflective of any other editorial staff. Check adviser’s records with the SEC or with FINRA.
