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A hidden Social Security windfall for divorced women

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For divorced women who are nearing retirement, time is of the essence to thoroughly analyze financial readiness.

To that end, Social Security is often not given its due attention. It not only ensures a consistent income stream but it is also somewhat customizable to individual circumstances.

Social Security benefits are far more complex than many people realize. But an adviser who is well versed in the intricate rules and options can customize a claiming strategy based on individual circumstances such as health status, life expectancy, need for income and plans to continue working, among other factors.

Take for instance, the case of Peter and Sarah.

The couple had been married for 26 years at the time of their divorce, and Peter had been the primary wage earner while they were together. Although the divorce settlement was amicable, Sarah was still worried about her retirement.

One of the issues that concerned her was that Peter had decided to retire early, before his full retirement age of 66, which would mean a reduction in benefits for both of them. And while Sarah continued to work, after her living expenses, there wasn’t much left to save toward retirement.

After speaking with her adviser, she got some good news. Sarah learned that divorced women are eligible for a benefit equal to one-half of their ex-spouse’s full retirement amount, as long as they start receiving benefits at their own full retirement age.

So for Sarah, who had just turned 66, along with Peter, this meant that she was immediately eligible for the divorced spousal benefit.

She could still continue to work and sock away even more for retirement savings. And this newfound source of monthly income would have no effect on Peter’s benefits.

Also, he would never even know that Sarah was receiving a distribution.

A divorced person is entitled to benefits based on his or her ex-spouse’s employment when: the ex is eligible for Social Security retirement or disability benefits; the marriage lasted for 10 years or longer; the divorced person remains unmarried; the divorced person is a least 62; and the benefit to which the divorced person is entitled based on his or her own wages is less than the benefit that he or she would receive based on the ex’s.

Sarah also learned that just as retiring early will reduce the Social Security benefit, delaying retirement will increase it. With that understanding, she decided to continue working until 70, at which point, she would begin drawing a benefit based on her own wage history, rather than Peter’s, and also be entitled to the maximum delayed retirement credit.

Unwinding a marriage is widely considered the second most stressful life event that one can experience. And ensuring a comfortable retirement is arguably the most pressing financial concern of a lifetime.

Navigating the intricacies of Social Security benefits is just one of the many ways that an adviser can help.

Resources to help advisers improve their Social Security planning proficiency are readily available.

The Social Security Administration provides a dedicated website, “Information for Financial Planners.” In addition, Social Security Analyzer Maximization Software is a terrific tool for benefit calculations and strategy development.

Dana McLaughlin, a CFP, is a senior wealth adviser at Beirne Wealth Consulting in Milford, Conn.

This story is part of a 30-30 series on tools and strategies for retirement.

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