Married same-sex couples boosted by Social Security

The Social Security Administration’s (SSA's) recent decision to recognize same-sex marriages presents opportunities for same-sex couples to substantially increase their expected lifetime payout of Social Security benefits, provided they make smart and careful choices about claiming benefits. The SSA’s decision applies to retirement and surviving spouse benefits, as well as claims for Supplemental Security Income (SSI). This decision follows the Supreme Court’s ruling last year that declared the Defense of Marriage Act unconstitutional.

Just a quick note: SSI is a program whose benefits are separate from Social Security's but are administered by the Social Security Administration. Unlike Social Security, SSI benefits are based on financial need, and the SSA considers the resources of the beneficiaries when determining eligibility and the amount of monthly payment.

In a recent statement about the SSI benefits, SSA acting commissioner Carolyn Colvin said, "As with previous same-sex marriage policies, we worked closely with the Department of Justice. With the release of these instructions, we continue our commitment to treating all Americans fairly, with dignity and respect."

Like many other aspects of Social Security, you need to pay attention to the details to determine how you may be affected. To receive benefits, you must satisfy the same eligibility requirements that apply to heterosexual married couples, and you must be legally married in a state that recognizes same-sex marriages and live in a state that recognizes same-sex marriages when you file a claim for Social Security benefits.

The SSA offices will be holding claims that are filed by spouses who were legally married but who reside in states where their marriages were not recognized at the time of the claim. Those claims won't be granted or denied until further guidance is issued by the Department of Justice. The SSA encourages people to file for claims if they are unsure if they are eligible.

Before these recent decisions, each partner of a same-sex marriage would only be eligible for Social Security benefits based on their own wage history. In this case, the optimal claiming strategy for benefits is relatively straightforward: If you’re in average or above average health, delaying the start of Social Security benefits as long as possible (but no later than age 70) is usually the best strategy. Claiming early – as early as age 62 – makes sense if you’re in poor health with reduced life expectancy.

The new decision provides the same spousal benefit that's been available for decades to heterosexual married couples. This spousal benefit pays an additional income that’s based on half of the benefit earned by the primary wage-earner. It’s most commonly applicable when one spouse didn’t work much outside the home and didn’t earn a significant benefit based on their own wage history.

"This is a milestone change, bringing equal treatment under law to millions of couples who were previously left without Social Security spousal benefits," said Andy Landis, author of Social Security: The Inside Story.

The decision also presents same-sex couples with the same opportunities and challenges as heterosexual couples for determining the Social Security claiming strategy that will optimize their financial security. An optimal strategy considers the wage history of each person, their health status and life expectancy, the gap in ages between each spouse, and the availability of other retirement resources. A well-thought-out claiming strategy has the potential to boost lifetime payouts by $50,000 to $100,000.

It’s more difficult to articulate general rules of thumb for couples who want to optimize their Social Security benefits compared to singles, but one guideline stands out regarding the surviving spouse’s benefits. If one spouse has a substantially higher wage history and expects they will pass away before the lower-wage-earning spouse, then it's usually smart for the high-wage earner to delay the start of benefits as long as possible.

The reason is that after the death of one spouse, the surviving spouse receives a Social Security income that is the greater of (a) the income the surviving spouse was receiving while both were alive or (b) the income the deceased spouse was receiving, reflecting any delayed retirement credits that applied due to the deceased spouse delaying the start of Social Security benefits. If you expect that this latter amount will be bigger than the first amount, it makes sense for the primary wage-earner to delay the start of Social Security benefits.

Another good strategy is for married couples to take the time to determine if such strategies as "file and suspend" and "restricted application" may boost their lifetime payouts. Since these strategies can be difficult for many people to understand and implement, it might be smart to either use software such as www.socialsecuritytiming.com or www.socialsecuritychoices.com to help you determine your best course of action, or engage a professional who's knowledgeable about these strategies. The Social Security Timing website also includes a directory of such financial advisors.

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    View all articles by Steve Vernon on CBS MoneyWatch»
    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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