Q: I am a lawyer who is still working. I currently make about $250,000 per year. My income has always been high, so I will get the maximum Social Security benefit when I turn 66 in a few months. I was married to my first wife for 15 years, but we divorced way back in 1989. I remarried, but that marriage only lasted five years and also ended in divorce. So I am currently unmarried. My first wife remarried a long time ago and has been married to her second husband ever since. She just turned 70. She is a rather successful real estate agent in southern California and makes a six-figure income. After all these years, we are still friendly and talk occasionally. She told me that at age 66, she filed for wife’s benefits on her husband’s Social Security record. Then last month when she turned 70, she filed for her own retirement benefits and got the bonus everyone talks about. I went to a Social Security maximizing seminar and was told that I can claim divorced husband’s benefits on my ex-wife’s record and delay my benefits until 70 and also get the bonus? Frankly, this almost seems too good to be true. Can I do this?

A: Yes you can. But if you ask me, it should be too good to be true! In my opinion, your situation is a classic example of what is wrong with the Social Security maximizing rules that allow folks like you and your ex-wife to jump through loopholes in the law that should have been closed a long time ago. 

Before I continue my rant, let me explain to some of my possibly confused readers what it is going on in your case. Both you and your ex-wife are taking advantage of an unintended but totally legal rule that allows people who are at least 66 years old to forego their own retirement benefits and instead collect Social Security spousal benefits from a husband’s or wife’s (or ex-husband’s or ex-wife’s) Social Security record. Those people can thus delay taking their own Social Security benefits until age 70 and therefore get a delayed retirement bonus of 32 percent added to their monthly Social Security retirement checks.

As I’ve written many times in past columns, what I don’t like about this rule is that it goes against some of the basic tenets of Social Security. When Congress set up spousal benefits in 1939, they said those benefits should be paid to a husband or wife who is financially dependent on the primary wage-earning spouse. They even established a method for establishing dependency. In other words, a spouse would have to prove that he or she was dependent on the other spouse’s income. But in order to keep administrative costs down, and prevent the government from having to dig too deeply into the financial affairs of married couples applying for Social Security benefits, Congress decided that dependency would simply be assumed if the dependent spouse’s own Social Security check was less than half of the primary wage-earning spouse’s retirement benefit.

Here is a typical example of how that assumed dependency is implemented. Fred retired with a Social Security benefit of $1,800 per month. His wife, Wilma, also retired. But because she spent many years out of the paid labor force raising their family, she ended up with a smaller monthly Social Security check of $600. Because Wilma’s Social Security was less than half of Fred’s benefit, her financial dependency was just assumed, so she qualified for a wife’s supplemental benefit from Fred’s account. She got an extra $300 in wife’s benefits added to her own $600 retirement check, giving her a total of $900 — or one half of Fred’s $1,800 benefit. 

(Before I go on, I must make the point that in order to keep my math simple in the above example, I just assumed both Fred and Wilma waited until age 66 to claim benefits. Every single time I use an example like this, I get emails, mostly from women, who say, “I don’t get half of my husband’s Social Security. Am I getting paid incorrectly?” After some back and forth emails, I always learn that the emailer took benefits before age 66, resulting in a reduced payment amount. For example, a woman who took benefits at 62 would only be due about one-third of her husband’s Social Security.) 

OK, back to the main point of this column. Spousal benefits are supposed to be paid to wives or husbands who are DEPENDENT on the higher-earning spouse. The assumed dependency rules explained in the Fred and Wilma example worked just fine until the 1990s, when Congress passed the Senior Citizens Right to Work Act. This is the law that allowed folks over age 66 who were still working to claim their Social Security. (Prior to that change in the law, folks who were still working had to wait until age 70 to claim Social Security.) And the new law also allowed folks to forego their Social Security benefits at 66 and earn a bonus equal to two-thirds of one percent for each month they delayed starting their Social Security — up to age 70. That comes out to a 32 percent bonus added to their benefits at 70. 

But the new law ended up with a huge loophole. Because people could forego their own benefits at 66, they obviously were getting nothing on their own account, and thus using the 1939 rules, they could simply be deemed dependent on the other spouse’s Social Security.

And so we can end up with situations described in today’s question. We have a rich real estate agent from southern California who was able to claim “dependent” wife’s benefits on her husband’s Social Security record. And more egregious than that, we have an even richer lawyer who will now be able to claim “dependent” husband’s benefits on an ex-wife’s account — a woman he hasn’t been married to in more than a quarter century!

This loophole simply must be closed!

If you have a Social Security question, Tom Margenau has the answer. Contact him at thomas.margenau@comcast.net.

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