Social Security, Mega Backdoor Roth Strategies, and QLACs

A Pennsylvanian reader asks about various claiming strategies for Social Security survivor benefits.

“I am 54 years old, was married for 22 years and am now divorced. Your podcast inspired me to think about Social Security filing strategies and to look at how much I will receive by opening my SS account online. I will receive about $2,000 per month at Full Retirement Age (FRA). My ex-wife is two years younger but makes double what I make per year. So here are my questions: can I take my SS at FRA (or later) and, if my ex-wife passes away, switch to survivor benefits, which would most likely be higher? And what if she passes before my FRA? Can I take a spousal benefit then if I am at least 60 and then let mine grow to 70?”

You’re on the right track but, first, a few clarification rules.

Once you’re married at least ten years, you receive treatment after divorcing as if you were still married, essentially, but with some slight modifications to the rules. You do qualify for a spousal benefit while your ex-spouse is alive, and you would qualify for a survivor benefit if your ex-spouse were to pass away.

(She would also qualify against your record if that were in her interest.)

Let’s start by looking at the basic difference in the magnitude of the two benefits. While there are details that influence an ex-spouse’s benefits, such as whether the benefit is reduced or full, the spousal benefit would mean 50% of the ex-spouse’s benefit amount. In comparison, the survivor benefit would be up to 100% of the ex-spouse’s benefit.

You mention your ex-wife earns double what you do, but that doesn’t mean her benefit will be double. There are limitations on what a benefit might be under the current rules. It could be larger than your $2,000 by a fair amount, yet it’s not $4,000 in 2020 terms. (According to Social Security, in 2020, the maximum benefit for a worker retiring at FRA was $3,011 per month.) [Link used as reference: https://www.ssa.gov/news/press/factsheets/colafacts2020.pdf ] She may well have a larger benefit if she’s had a full career making twice as much and if she doesn’t have any huge gaps in her earnings history. She’s the higher earner in this case.

So while we established that you would qualify for a spousal benefit and that her benefit will be larger than your own, you would have no help from a spousal benefit while your ex-wife is still alive under the current rules and the numbers you provided. Fifty percent of her benefit would be less than your benefit.

Now, you asked a couple of questions. First, if you were to claim your benefit at Full Retirement Age (FRA) and if your ex-wife were to pass away after that, could you switch to survivor benefits, which would most likely be higher?

Yes, in this first scenario, you could claim your own benefit at FRA and, if she were to predecease you later, you would qualify for a survivor benefit. You would get the higher benefit that she’s earned because of her higher earnings record.

But eligibility assumes you don’t get remarried to someone else before age 60 (or age 50, if disabled). By waiting beyond age 60, you retain the right to claim a survivor benefit on your ex-spouse’s record.

Your second question was: what would happen if your ex-wife were to die before your FRA? Here you mentioned claiming a ‘spousal’ benefit, but I assume you meant a survivor benefit. If she’s passed away, the survivor benefit is what’s available. And, yes, you would be able to claim a survivor benefit as young as age 60 (or age 50, if disabled, which you did not mention).

So, between your age 60 and 67, if she were to pass away, you could immediately file for a survivor benefit, leaving your own benefit untouched and growing in the background. And if yours were going to end up being larger, that is the strategy you would take.

You could also do the reverse strategy. You could claim your own benefit first, at a reduced rate since you’re claiming it before your FRA, and then switch to the survivor benefit later on.

You’d have to see the exact numbers. I can’t give you further guidance on which technique might be best without knowing her benefit and us running some hypothetical ages. But it is possible to deploy either strategy. If your hypothetical were to occur – that of your ex-wife passing before your FRA – you could either claim the survivor first, then switch to your benefit later, or claim yours first and switch to the survivor later.

With 22 years of marriage, you do have the right to claim either a spousal benefit or a survivor benefit on her record, depending on whether or not she has passed, as long as you do not remarry. Remarriage will eliminate the spousal opportunity. The survivor benefit has a special rule if you do not remarry before age 60.

There are some nuanced differences between ex-spousal benefits and current spousal benefits. But in principle, once you’ve been married for ten years, if divorced and not remarried, Social Security treats you like currently married spouses.