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About 2,800 rules govern intricacies of Social Security

Logo for Social Security's 80th anniversary.

Logo for Social Security's 80th anniversary. Photo Credit: Social Security Administration

Whenever I write about Social Security, I am inundated with follow-up questions. It's no wonder, since there are about 2,800 rules that govern the system and thousands of retirement-claiming strategies.

Some of the confusion about Social Security is captured in a survey released by the Financial Planning Association and AARP. Four in 10 Americans ages 45 to 64 expect Social Security to make up half or more of their household retirement income. Meanwhile, 94 percent of certified financial planners surveyed said Social Security will provide 50 percent or less of clients' retirement income.

What explains the gap between what the pros and consumers think? As the report notes, "Overall, Social Security knowledge is lacking for Americans." Just 9 percent of consumers believe they are very knowledgeable about how Social Security benefits are determined, and another 38 percent believe they are somewhat knowledgeable about how their benefits will be determined.

Certified financial planners think those numbers are high -- just 1 percent of the professionals think their clients are very knowledgeable and 31 percent said their clients are somewhat knowledgeable.

In fact, the survey revealed that most soon-to-be retirees did not know the nuts and bolts of claiming strategies, such as waiting to claim benefits in order to get a significantly higher benefit over the course of retirement.

Sixty-seven percent underestimated the impact of waiting until full retirement age to claim benefits, and there was great confusion about claiming benefits on a former spouse. (Indeed, the vast majority of questions I fielded about Social Security since my last column on the topic had to do with claiming benefits after a divorce.)

To clarify the issue, I consulted with nationally recognized Social Security expert Mary Beth Franklin. Franklin writes regularly about retirement income planning, including her valuable downloadable book, "Maximizing Your Social Security Benefits."

Franklin said, "The basic rule about claiming benefits on a former spouse is that you must have been married for at least 10 years before you got divorced and you must be currently single (single or widowed from a subsequent spouse)."

Many were concerned that claiming benefits on an ex's record would diminish the benefit for the ex, him or herself. Not so, Franklin says.

There were also a lot of questions about whether an ex-spouse can claim retirement benefits as early as age 62. Franklin: "The answer is 'yes,' with a caveat. You can claim on your ex, but the other Social Security rules apply. That means that you would have to claim a reduced benefit . . . on your own record and then, if one-half of your ex's benefit is greater than your own, you could collect the difference."

Here's an example: Jack is 67 and Jill is 62. They were married for 20 years and then divorced. Jill is currently single and would be entitled to $1,000 per month on her own record if she were to wait until her full retirement age of 66. Instead, she wants to claim at 62, which reduces her monthly benefit to $750.

Jack claimed his $2,500 per month benefit at his full retirement age. If Jill had waited until her own full retirement age, she would have been entitled to one-half of his benefit, which would have been $1,250 per month. But, because she is claiming at 62, her share of his benefit would also be reduced, so she would be entitled to only $875 per month. (From the perspective of Social Security, Jill would be entitled to two benefits at age 62: her $750 plus $125 from her ex-husband, for a total of $875.)

Pretty confusing, right? And that's just one example of the intricacies of the system.


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