For numerous retirees, Social Security benefits stand as a crucial pillar of financial stability during their retirement years, particularly if personal savings fall short. Recent data by The Vanguard Group, from an analysis called “How America Saves 2023”, reveals a median retirement account balance of approximately $27,000 among U.S. adults. This modest sum underscores the importance of Social Security benefits in preventing financial strain for retirees lacking substantial savings.
Given this backdrop, optimizing your Social Security benefits becomes paramount. While an array of strategies exists to enhance your benefits, a straightforward approach holds the potential to amplify your monthly payments by nearly $900: leveraging spousal or divorce benefits.
Understanding Spousal and Divorce Benefits within the Social Security Framework
Spousal and divorce benefits represent distinct categories of Social Security provisions tailored for individuals who are presently or previously wedded to someone entitled to retirement or disability benefits. Qualifying for spousal benefits is straightforward: being married to an individual eligible for Social Security suffices. This avenue remains open even if you possess no work history or haven’t accrued sufficient credits for your own benefits, as you can still access spousal benefits.
Divorce benefits entail a slightly more intricate set of criteria. Your former marital union must have persisted for a minimum of 10 years, and your current marital status must not be married. In the scenario of a divorce transpiring within two consecutive years, you’ll also need to await your ex-spouse’s initiation of Social Security claims before pursuing divorce benefits.
What Is the Maximum Payout for Spousal and Divorce Benefits in the United States
Effective as of July 2023, the Social Security Administration (SSA) reports that the typical monthly benefit hovers around $891 for spouses of retired workers. For those married to disabled workers, the average monthly benefit stands at approximately $407.
Nonetheless, the precise amount you’ll receive is primarily contingent on the work history of your current or former spouse.
In the case of both spousal and divorce benefits, the maximum payout caps at 50% of the sum your spouse (or ex-spouse) is eligible for at their full retirement age (FRA). To access this maximum sum, you’ll need to wait until your own FRA before applying. For individuals born in 1960 or later, the FRA is set at 67 years old. Should you choose to file prior to reaching this age (as early as 62), your benefit will be subject to a potential reduction of up to 30%.
Even if you qualify for Social Security benefits based on your own employment history, you can still access spousal or divorce benefits. However, there exist limitations on the total amount you can receive.
Across all scenarios, the utmost you can collect remains at 50% of your spouse’s or ex-spouse’s benefit as calculated at their full retirement age (FRA). If your personal earnings already surpass this threshold, you are ineligible for spousal or divorce benefits. Yet, if your earnings fall beneath this benchmark, you will receive the higher of the two sums.
To illustrate, consider a scenario where you’re entitled to $800 per month in retirement benefits at your FRA from your own work record, while your spouse is set to receive $2,000 per month at their FRA. In this instance, your spousal benefit would amount to $1,000 per month, constituting the sum you would receive—not $1,800 per month.
Social Security often presents intricacies and moments of confusion, but it also possesses the potential to serve as a vital support during retirement. By fully leveraging the range of benefits accessible to you, you could potentially elevate your monthly income by several hundred dollars.
If you’re a widow or widower, you can receive up to 100% of a spouse’s benefit amount if you have reached full retirement age at the time of the application. If the widowed person is at least 60 but under full retirement age, the payment is reduced to somewhere between 71% and 99% of the deceased’s entitlement
In terms of survivor benefits for federal employees, if you retire under the Civil Service Retirement System (CSRS), the maximum survivor benefit payable is 55% of your unreduced annual benefit, while under the Federal Employees Retirement System (FERS), the maximum survivor benefit payable is 50% of your unreduced annual benefit.
Can access spousal or divorce benefits if have employment history and have accrued benefits?
Yes, you can access spousal or divorce benefits even if you have your own employment history and have accrued benefits. However, eligibility and the amount you receive depend on several factors, including your age, marital status, and the benefits you would receive based on your own employment history.
- You need to have been legally married for at least ten years to your ex-spouse.
- You need to be currently unmarried. If you have remarried, that subsequent marriage needs to have ended in death or divorce.
- You need to be at least 62 years of age.
- The benefit you would receive based on your own work history needs to be less than the benefits you would receive under your ex-spouse’s record.
- If you are divorced for less than two years, you also must wait until your ex-spouse claims benefits on their own work record before you become eligible to begin your spousal benefits.
Amount of Spousal Benefits:
The amount you receive depends on a few factors. If you wait until your full retirement age and meet all the other criteria, you can collect 50% of the amount of benefits that your ex-spouse is entitled to. If you are entitled to benefits on both your own record and your ex-spouse’s record, you will be paid the higher amount.
If your ex-spouse dies, you may be able to collect Social Security survivors’ benefits on their account. You need to have been married for at least ten years and currently be unmarried or remarried after age 60.If you are under age 50 when you start receiving these benefits, you must remain unmarried in order to collect survivors’ benefits on your ex-spouse’s account.If you are raising the minor child of a deceased ex-spouse, you may not have to wait until retirement age to claim these benefits.
Social Security Payments Are Set to Increase in October 2023
The cost-of-living adjustment (COLA) has an impact on spousal benefits within the Social Security program. Spousal benefits are typically considered to be half of the primary insurance amount of the higher-earning spouse.
Nonetheless, the precise calculation involves a bit more complexity, as it combines two distinct benefits and adjusts them based on the age at which each part of the benefit becomes payable. The COLA index is going to have a modest increase this year, much smaller than in the previous two years. It is expected that the benefits of retirees alone and receiving payments in pairs will see an increase in their monthly checks of between 3% and 3.2%.
The SSA will announce the COLA increment for retirees around mid-October, and most beneficiaries will see the increase in their payments starting next January. To calculate COLA, government agencies typically use the Consumer Price Index (CPI). The CPI measures changes in the prices of a “market basket” of goods and services over time. This basket represents the average spending patterns of a typical consumer. When the CPI increases, it indicates that the cost of living has gone up.
US States That Tax Social Security Benefits
Several states in the United States impose taxes on Social Security benefits. These states either partially or fully tax these benefits, which can impact the retirement income of seniors residing there. It’s essential for retirees to be aware of their state’s tax policies to plan effectively for their financial future.
One group of states that partially taxes Social Security benefits includes Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. The level of taxation varies among these states, with some exempting a portion of the benefits based on income thresholds.
On the other hand, states like California, Arizona, and Oregon do not tax Social Security benefits at all. However, it’s worth noting that tax laws can change over time, so it’s crucial for retirees to stay informed about their state’s tax policies and consult with financial advisors to make informed decisions about their retirement income. When you’re planning to retire, consider checking your state’s tax legislation in order to make the most out of your benefits.