New Social Security rules will limit claiming options for ex-spouses.
Divorce among spouses age 50 and older is increasingly common and has negative implications for baby boomers' retirement security, according to new research from the National Center for Family & Marriage Research at Bowling Green State University.
“Individuals who go through gray divorce are considerably economically disadvantaged and they are a growing demographic group,” wrote I-Fen Lin, Susan Brown and Anna Hammersmith, co-authors of the study Marital Biography, Social Security and Poverty.
Even though the overall U.S. divorce rate has remained stable since 1990, gray divorce has doubled during that period. The researchers estimated that nearly 650,000 people over 50 divorced in 2010 alone.
While older adults enjoy the lowest overall levels of poverty, largely due to Social Security, poverty levels vary by marital status. “The share of baby boomers living in poverty is nearly five times higher among unmarried (19%) than marrieds (4%),” the report found. Married couples enjoy a median household income of over $105,000 compared to just $57,000 for households headed by an unmarried boomer.
“Social Security was designed during an era when most elders were married, a scenario that is less common today and is likely to be even less typical in the future,” the researchers wrote. One in three baby boomers is unmarried compared to just one in five midlife adults in 1980. The declining share of older adults who are unmarried — whether through widowhood, divorce, cohabitation or never married — represents a fundamental shift in American life and raises critical questions about financial security in retirement.
Gray divorce appears to diminish wealth more than earlier divorce, the report noted. “Those who divorce earlier in adulthood have more time to recoup the financial losses divorce usually entails,” the report said. “In contrast, those who divorce later have fewer years of working life remaining and may not be able to fully recover economically from a gray divorce.”
In addition, gender matters and economic disparity between men and women widens with age. A whopping 27% of gray divorced women are poor compared to just 11% of gray divorced men. Gray divorced women receive smaller Social Security benefits on average than all other single women and men.
“Despite rising female labor force participation in recent decades, a majority of women receive Social Security through spousal or widow benefits rather than on the basis of their own contributions,” the report said. Given the broader retreat from marriage, fewer older women may be eligible for spousal or widow benefits, whether because they divorced less than 10 years into the marriage, they did not remarry or they never married in the first place,” the report said.
Anyone who was married at least 10 years, is divorced and currently single is eligible to claim spousal benefits on an ex-spouse's earnings record. As long as they have been divorced at least two years, former spouses can claim on an ex's earnings record even if that person has not yet claimed Social Security as long as both of them are at least 62 years old. Ex-spouses (who do no remarry before age 60) are also entitled to survivor benefits when an ex-spouse dies.
A new law limits the ability of spouses and qualified ex-spouses to claim only spousal benefits when they turn 66. A spousal benefit is worth 50% of the worker's benefit if the person collecting the spousal benefit is at least 66 years old. This strategy is known as filing a restricted claim for spousal benefits. It allows a spouse (or qualified ex-spouse) to claim only spousal benefits for up to four years while allowing his or her own retirement benefit to continue to grow by 8% per year up to age 70. At that point, they can switch to their own larger Social Security benefit.
Filing a restricted claim for spousal benefits can be particularly useful to divorced spouses who need to work longer to build up their retirement savings and create a larger Social Security benefit. But this strategy is being phased out.
Only those people who turned 62 by the end of 2015 (including anyone born on or before Jan. 1, 1954) can still file a restricted claim for spousal benefits when they turn 66. Younger people will not be able to use this valuable claiming strategy, removing a critical financial option for the legions of gray divorced women.
Mary Beth Franklin is a certified financial planner.
