Over the last 30 years, the divorce rate for couples over 50 has doubled, according to the Pew Research Center. There are many theories about the primary causes of this trend, including empty nest syndrome, boredom, and growing apart. No matter the reason, deciding to divorce later in life can have significant implications on your retirement plan, specifically your Social Security benefits.

Social Security can raise its own set of questions about claiming and receiving benefits, especially if one spouse earned significantly more than the other. Based on your own earnings history, you need to have at least 10 years of covered earnings from employment where you paid into Social Security to become eligible for benefits.

Your base benefit, also known as your primary insurance amount (PIA), is calculated using a complex formula that factors in your highest 35 years of earnings. If you have fewer than 35 years of earnings, you will have the opportunity to increase your PIA with additional years of covered earnings.

Ex-Spousal Benefits

If you were in a marriage for at least 10 years and are not currently married, you will be able to receive the greater of your own or your ex-spousal benefit. Your ex will not be affected by your claim, won’t know that you are claiming on your record, and won’t have a say in your claim. Even if your ex has not yet claimed benefits, you can still claim benefits as long as you have been divorced at least two years.

If your ex-spouse passes away after your divorce is final and you were married for at least 10 years, you’ll also be eligible for survivor benefits.

Claiming Ages and Adjustments

Since your PIA is calculated based on your covered earnings history, your retirement benefit will be equal to your PIA if you claim at your full retirement age (FRA), which depends on the year you were born (see chart below). Additional adjustments will be applied to your PIA depending on when you claim your benefit. The chart below displays the PIA reduction that would be applied if you claimed benefits at age 62, which is the earliest age at which you may claim. If you claim spousal benefits or ex-spousal benefits prior to your FRA, you will also see reductions applied. The chart below shows the reduction applied to spousal or ex-spousal benefits if they were claimed at age 62.

If you defer claiming your retirement benefit beyond your FRA, you will receive delayed retirement credits in the amount of eight percent per year, until a maximum claiming age of 70.

If your spouse or ex-spouse earns delayed retirement credits, those will not increase the amount of spousal or ex-spousal benefits you could receive.

You will not earn delayed retirement credits by deferring spousal, ex-spousal, or survivor benefits beyond your FRA. Only your own retirement benefits are eligible for delayed retirement credits.

Birth YearFull Retirement Age (FRA)Age 62 Retirement
Benefit Reduction
Age 62 Spousal/Ex-Spousal
Benefit Reduction (after 50% spousal reduction)
195566 and 2 months25.83%30.83%
195666 and 4 months26.67%31.67%
195766 and 6 months27.50%32.50%
195866 and 8 months28.33%33.33%
195966 and 10 months29.17%34.17%
1960 and later6730.00%35.00%

Source: SSA.gov

Taxation of Benefits

A complex formula determines how much, if any, of your Social Security income is taxable. Your state may tax your benefits as well. If Social Security is your only source of income, you won’t owe any federal income taxes. As your income increases, more of your benefits become taxable, up to a maximum of 85 percent taxability. At a minimum, 15 percent of your Social Security benefits will be tax-free. This sliding scale of taxation can create unforeseen tax liabilities for those with other sources of income, so care should be taken when coordinating your various sources of retirement income.

Grey divorce can have widespread implications for the couple, their children, and others in their lives. It can turn out to be better for both spouses emotionally, but financially, there are short- and long-term implications. Retirement funding can be more expensive for singles, and it’s important to make sure you decumulate your assets wisely so that you don’t outlive your money.

This is intended for informational purposes only and should not be construed as personalized financial advice. Please consult your financial professional regarding your unique circumstances.

Author Justin D. Smith Financial Advisor

Justin has been involved in the financial services industry since 2005. He earned a bachelor’s degree from the University of Michigan and is a frequent speaker on tax-smart retirement planning.

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