Gay and lesbian couples who live in the dozen states around the U.S. where same-sex unions are not recognized could get vastly richer Social Security benefits if the Supreme Court gives them the right to marry. That's because the complex federal retirement program is largely designed to care for spouses who didn't work or who put their careers on the back-burner to raise children or do other unpaid work at home.
Where that same familial role may have been taken on by one partner in a same-sex union, without the official government recognition of same-sex marriage, the entitlement to Social Security's spousal and survival benefits was unclear, said Chris Jones, chief investment officer of Financial Engines, a retirement planning firm. The Supreme Court ruling, expected by the end of this month, could change that, making same-sex couples eligible for significant new payments, according to a Financial Engines analysis.
"Social Security remains the bedrock of most Americans retirement security, so this is very significant," he said. "The options for claiming Social Security benefits are far better for married couples than for singles."
Although the impact will vary from couple to couple, those who attempt to maximize marital benefits could end up ahead by hundreds of thousands of dollars.
Consider a hypothetical couple whom we'll dub Sally and Sue. Sally is two years older and was the primary wage earner, qualifying for $2,500 in monthly Social Security benefits at full retirement age, which in her case is at 66. Sue is two years younger and took several years off from paid work. Her full benefit is $1,100. However, because they both want to retire early -- Sally at 64 and Sue at 62 -- their benefits benefit would be reduced to $2,167 for Sally and $825 for Sue.
For illustration purposes, we'll assume that Sally lives to age 84 and that Sue lives to age 90. As two single people, they would collect a sum total of $797,280 from Social Security over the course of their lives, according to the Financial Engines analysis.
But if their marriage were recognized by the Social Security system, Sue could claim spousal benefits that are $50 per month higher than her own benefit, boosting her lifetime payments by $16,800. Moreover, after Sally's death, Sue would be eligible for "survivor" benefits that amount to the full amount of Sally's monthly benefit, which is $1,292 per month higher than her own. That boosts Sue's lifetime Social Security payments by a whopping $124,032. Combined, Sue would be able to collect $140,832 more over her lifetime.
Additionally, Jones said, there are strategies that married couples can use to further optimize their benefits, particularly if they wait until after normal retirement age to claim Social Security. Social Security boosts benefits by 8 percent for each year after normal retirement age that you wait to claim payments, up until age 70, so the most lucrative strategy is aimed at claiming benefits based on your own work record after that point.
How might you do that? If Sally worked until age 68 and then filed for benefits, but "suspended" her application so that she would not collect benefits for another two years, Sue could start claiming spousal benefits at age 66 (her normal retirement age) equal to 50 percent of Sally's full benefit ($2,500). That pays her $1,250 per month. At age 70 both Sally and Sue claim benefits on their own records, getting boosted benefits of $3,300 and $1,452 per month, respectively. Over their lifetimes, the couple now collects a sum total of $1,140,288.
These strategies are already available to traditional married couples, as well as to gay couples who live in states where same-sex unions are recognized. These couples are also well-advised to consider all options to maximize their benefits, Jones said (Financial Engines has a free calculator that can help individuals plan how to best claim Social Security.) However, it's also a good idea for people who are nearing retirement to make an appointment for an in-person meeting with a Social Security representative, who can walk you through all the potential choices and how different claiming strategies could impact your monthly benefits.