Same-Sex Marriage's Big Benefit is Social Security
CHICAGO -- Friday's U.S. Supreme Court ruling on same-sex marriage will give a huge boost to the retirement security of LGBT Americans. That will be especially true in the realm of Social Security -- where it pays to be married.
The ruling will affect everything from access to spousal pension and retirement accounts, health benefits and more. But Social Security really is the headliner. Recognition of same-sex marriage in all 50 states will guarantee access to Social Security's spousal and survivor benefits, which are the most valuable features of the program.
Just how valuable? Financial Engines, a large financial advisory firm, ran numbers recently for a hypothetical same-sex couple and found that marriage could be worth $343,000 in additional lifetime benefits.
Spouses usually don't have the same lifetime earnings history, and hence their Social Security benefits differ. That is why many married couples take advantage of rules that permit a spouse to receive up to half of a living spouse's benefit if it is larger than his or her own. And the survivor rules permit widows or widowers to receive up to 100 percent of a deceased spouse's benefit or his/her own benefit, whichever is greater.
The big payoff comes when couples coordinate the timing of their Social Security benefit claims. You can claim as early as age 62, but that would reduce the lifetime value of your benefit by 25 percent. Or, you could wait until after the full retirement age (currently 66) to claim -- that gives you a whopping delayed retirement credit of 8 percent for each 12-month period of delay -- up until age 70.
Filing later means higher annual income for life, which can be a great hedge against the risk of running out of money in old age. The downside is that it can mean fewer total lifetime years of benefits, depending on your longevity. That is where a lesser-known, more complex strategy called file-and-suspend enters the picture.
In this scenario, the higher-earning spouse files for benefits at full retirement age, then immediately files a notice to suspend payment of those benefits. That permits the lower-earning spouse to file for a spousal benefit, which is equal to half of the spouse's benefit.
That gets some benefit flowing to the household while the higher earner continues to accrue higher benefits through delaying, perhaps until age 70; at that point, the lower-earning spouse converts to his or her own full benefit. (Note: The spouse can convert to a full benefit only by waiting until full retirement age to file for a spousal benefit.)
Financial Engines illustrated the value of these rules with a hypothetical same-sex couple named Henry and Logan. Henry is 64, Logan is 62; analysis assumes that Henry will live to 84, Logan to 90. Henry is the higher earner -- his benefit at his full retirement age is $2,500 per month, compared with $1,100 for Logan.
The analysis found that if Henry and Logan file separately now, they would receive lifetime combined benefits of $797,000. With recognition as a married couple, they would get $938,000 -- with the difference coming through spousal and survivor benefits for Logan. And, if they execute a file-and-suspend, they would receive $1.14 million lifetime -- just under $343,000 in additional benefits. (In that scenario, Henry files and suspends at 68, and Logan, age 66, starts receiving a spousal benefit.)
The Social Security Administration should be able to issue new rules quickly to its field offices, according to Webster Phillips, a senior policy analyst for the National Committee to Preserve Social Security and Medicare.
NCPSSM has been holding Social Security education meetings for same-sex couples around the country.
(The writer is a Reuters columnist. The opinions expressed are his own.)