When Rachel McNeil told her client that she would be able to collect half of her ex-husband’s Social Security benefit, the news opened old emotional wounds.
“I’m not sure that I want to have anything to do with him,” the then 66-year-old client told McNeil, a financial advisor with Raymond James’ Mustard Seed Advisors in St. Petersburg, Fla.
McNeil tried to shake off the client’s reluctance to apply for the benefit. The move would give her roughly $1,200 a month, while allowing her own Social Security benefit to grow, McNeil explained.
“You’re going to get more dollars each year that you wait and assuming that you live past 80 that is going to make more dollars in your bucket than any other way,” she explained to the client, who at 66 had reached her full retirement age and was eligible for a benefit of $2,200 a month.
McNeil explained that her ex wouldn’t know she would be drawing on his benefits because the Social Security Administration doesn’t disclose this information. “If you can get past the emotional aspect of a perceived tie-back to him, we recommend you consider this,” McNeil told her client.
The client agreed. For the next two years, she received an ex-spousal Social Security benefit of $1,200 a month — one of multiple income streams she received — and gradually phased into retirement, working fewer hours. At 68, she decided that she’d wait until 70 to transition to her own Social benefit, which was estimated to grow to $2,750, or $550 more a month than it otherwise would have been had she claimed at 66.
In the interim, the client was ready to “take a little more from her IRA” to boost her income but would return to her regular 4% IRA withdrawal rate once she started to receive her own Social Security benefit.
As fate would have it, she didn’t need to. Days after deciding she’d wait until her 70th birthday to switch to her own work record, she learned that her ex-husband passed away unexpectedly, again setting off a wide range of conflicting emotions. She also learned to her astonishment that she would receive her ex-husband’s full Social Security benefit of $2,400 as an ex-spouse survivor.
Even McNeil was surprised. She was unaware that if an ex-spouse dies, the surviving ex-spouse could continue to receive ex-spousal benefits.
McNeil’s client will continue to receive a monthly $2,400 Social Security check as an ex-spouse survivor until May, when she turns 70 and switches to her own $2,750 benefit for the rest of her life. If she lives until 85, she will have collected roughly $581,400 in Social Security benefits on both her ex-husband’s and her own work record. That’s $79,800 more than if she simply started collecting benefits on her own work record at 66.
McNeil doubts that this type of claiming strategy will be available to clients two to ten years from now. She anticipates that Congress will move to tighten claiming options and that seniors will have to choose between either claiming benefits on their own work records or taking half of their ex-spouses’ benefit, whichever is higher.
“I think they’re going to lose the window to allow the ex-spouse to let their own work record grow,” she says.
In the meantime, clients should take advantage of the opportunity to boost their Social Security benefits by delaying benefits as long as they can. “Every year you wait to turn it on, you currently get an 8% increase,” she says. “Where else in the marketplace can you get 8% a year guaranteed return by waiting?”
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