It’s safe to say that same-sex couples now want and need more help with their Social Security than ever before. The reason is simple: They’re now looking at spousal and survivor benefits, which hadn’t been available in previous years. They need the help of a qualified professional to explain these new concepts and help them make the right decision.
Two recent Supreme Court rulings have opened up new opportunities for same-sex couples. These rulings put advisors in position to dramatically improve the retirement prospects for same-sex couples. The opportunity is there. But you need to understand the requirements and be able to explain them clearly to your clients.
The first ruling (United States v. Windsor, 570 U.S. 12 (2013)) repealed the Defense of Marriage Act (DOMA). The ruling made Social Security spousal benefits available in states that recognized same-sex marriage. That’s the good news. The bad news is that it took nearly a year before any spousal or survivor benefits were actually paid to a same-sex couple.
The second ruling took place in June of 2015, in Obergefell v. Hodges (574 U.S. ___ (June 26, 2015)). This ruling mandated that same-sex marriage be legalized in all 50 states. While this ruling generated a great deal of media interest, the effect on Social Security was probably less than with Windsor. For one thing, the new ruling only affected the states where same-sex marriage wasn’t legal. These states were: Alabama, Arkansas, Georgia, Kentucky, Michigan, Mississippi, Missouri, Nebraska, North Dakota, Ohio, Tennessee, South Dakota and Texas. All the other states had already approved it.
Prior to the June 2015 Supreme Court decision, same-sex couples who were legally married and residing in a state that recognized the marriage were entitled to Social Security spousal and survivor benefits. That’s now true in all 50 states.
No New Action
For same-sex couples in one of those 13 states that previously didn’t recognize same-sex marriage, there’s nothing new to report.. In most cases, people who have applied for benefits in one of those states are still waiting. In fact, if you look on the Social Security Administration website, you get the following message:
Important Information for Same-Sex Couples
On June 26, 2015, the Supreme Court issued a decision in Obergefell v. Hodges, holding that same-sex couples have a constitutional right to marry in all states. As a result, more same-sex couples will be recognized as married for purposes of determining entitlement to Social Security benefits or eligibility for Supplemental Security Income (SSI) payments.
We are working with the Department of Justice to analyze the decision and provide instructions for processing claims. We will update this website as new information becomes available.
This message first appeared in July, and it’s still there as of this writing. One possible interpretation is that it may still be a few more months before any spousal or survivor benefits are paid in the 13 states. Prior to the 2013 ruling, DOMA prevented spousal benefits from being paid to a same-sex couple at all. But even after the ruling, it wasn’t until May of 2014 that the first benefits were actually paid.
Also, note the reference to “SSI payments”. This isn’t the Social Security program we all know and love. It’s a separate program, funded out of general revenues, which covers some living expenses for low-income individuals. FICA taxes go towards Social Security retirement, spousal, survivor and disability benefits. They don’t go towards SSI. So the very mention of it may create confusion.
After Windsor, SSA encouraged same-sex couples to apply immediately for Social Security benefits, even in states that didn’t allow for same-sex marriage. In fact, SSA still says “we encourage you to apply right away.” The thought was that applying right away would allow retroactivity if the couple were ultimately deemed eligible. It also gave SSA time to work on fixing the problem.
But keep in mind the one thing they’re not telling you: just because your client can apply for benefits right now doesn’t mean he should. As we’ve seen in previous columns, applying too early can cost tens or hundreds of thousands of dollars over a joint lifespan. So take this advice with a grain of salt.
Spousal Benefits and Same-Sex Marriage
Previous columns have discussed spousal benefits in detail, and I don’t intend to cover old ground. Just keep in mind that many same-sex couples are unlikely to have heard much about spousal benefits. That needs to change.
So here’s a brief refresher: the spousal retirement benefit is generally 50 percent of working spouse’s benefit. That means that if Spouse A collects a $2,000 benefit at full retirement age (FRA) and Spouse B never worked outside the home, Spouse B could receive a $1,000 spousal benefit at FRA. In theory, if Spouse B has a personal benefit of more than $1,000, no spousal benefit would be payable.
There are ways around this. Strategies such as “file and suspend” and “restricted application” can maximize the spousal benefit in situations in which no spousal benefit would otherwise be payable. Those strategies are now available to same-sex couples. But a word of caution: As you’re probably aware, there were some significant rules changes that went into effect in November of 2015. There are now some limitations to both of these. My previous article discussed these changes in detail.
Survivor Benefits and Same-Sex Marriage
As important as spousal benefits are, there are many cases in which survivor benefits are even more critical. So here’s another brief refresher. Assuming both spouses are past age 70, survivor benefits are relatively simple: In most cases, the survivor benefit is simply the higher of the two. So if Spouse A is getting $2,000 a month and Spouse B is getting $1,000, the survivor will get $2,000, regardless of which spouse dies first. This is one reason we often emphasize that if possible, the spouse with the higher benefit should consider waiting until age 70 to collect. That way, he maximizes both his own benefit and the eventual survivor’s benefit.
This is a new idea for many same-sex couples. Any analysis prior to the Supreme Court rulings was likely done on a single life, rather than a joint life basis. Let’s look at an example: Assume Spouse A is in poor health. It might make sense for someone with a short life expectancy to begin collecting at age 62, but what happens when your clients consider a survivor benefit? That could change the decision. Being able to explain the difference could make you invaluable to your clients.
Where survivor benefits tend to get complicated is when one or both of the spouses claim early (before FRA), or dies before age 70. I discussed all this in a previous article.
There are other types of benefits, such children’s benefits, parents’ benefits and the “child in care” benefit, which are now available to same-sex couple in all 50 states. These too can have an impact on deciding the best time to file.