Social Security and divorce planning are two complex financial planning topics; the combination of the two can be even trickier. The population currently making decisions to claim Social Security -- baby boomers -- has among the highest divorce rates of any generation. And the boomers' divorced population is growing; in a phenomenon known as "gray divorce," Americans over 50 are divorcing more frequently than in the past.
Social Security advice for divorced clients requires the right mix of technical and relationship-oriented expertise. Keep this advice in mind as you work to maximize your clients' Social Security post-divorce.
1. KNOW YOUR FACTS
Social Security is not straightforward in cases of divorce. First, make sure you establish your client's length of marriage and time of divorce; 10 years is the magic number for married years to make your client eligible to receive Social Security benefits or survivor benefits on their ex-spouse's record.
Process tip: Always ask clients if they have been married before. You may think you know everything about your client, but sometimes you would be surprised.
2. REMARRIAGE MATTERS
If your client got (and stayed) remarried, they will not be eligible to claim benefits based on their ex's record. If the client has had more than one marriage that lasted more than 10 years and resulted in divorce, both exes' records are in play as potential claiming strategies.
3. PATIENCE PAYS OFF
As always, the longer a client can wait for Social Security up to age 70, the larger the monthly benefit will be. Focusing on full retirement age and beyond is key for maximization strategies.
Note that you don't just need to know your client's full retirement age; the ex-spouse's age matters as well.
Process tip: Begin to discuss Social Security strategies with clients early -- well before age 62. If your client is divorcing with retirement years off, you can still have an initial discussion about options.
4. CONSIDER A RESTRICTED BENEFIT
Social Security maximization will often include file-and-suspend or use of a restricted benefit. In the case of divorce, it may be advantageous to file for a restricted benefit so that a client can collect on the ex's record at first, then switch to his or her own necessarily higher benefit at age 70.
Process tip: Use your financial planning or Social Security analysis software to evaluate options for your client's claiming strategies and document them for your records, your communication with clients and future plans.
5. OFFER THE RIGHT ADVICE THE RIGHT WAY
Americans continue to shortchange themselves with early claiming. Incorporate the results of different claiming choices into your retirement analysis for your clients.
Veer away from breakeven analysis, which is found to be less persuasive in assisting clients to make favorable long-term decisions.
Process tip: Lay out your client's choices in a straightforward manner. Consider showing them the differences in their probability of success in retirement based on different strategies or show their accumulated benefits at different ages as you work with them on their decision.
6. DON'T FORGET SURVIVOR BENEFITS
Divorced clients who are eligible to receive a spousal benefit on a former spouse's record are also eligible for survivor benefits upon the death of that spouse. Keep this in mind and educate your client on Social Security's rules.
Bring value to your divorced clients by understanding the facts of the situation and their eligibility. Work with these clients to so that they use Social Security to their advantage. Educate your clients so that there is a clear understanding of their personal options.
Melissa Joy, CFP, is partner and director of wealth management at Center for Financial Planning, an independent Raymond James firm in Southfield, Mich.
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