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DOMA and new Social Security opportunities for same-sex couples

SS Card 2.jpgSame-sex married couples have so much to gain from the Supreme Court’s ruling on the Defense of Marriage Act (DOMA). For many families, one of the most valuable changes may be possible additional Social Security retirement benefits. In December the Social Security Administration began processing claims for some same-sex couples. According to their website, Social Security is still working with the Justice Department on policy going forward but they are encouraging those in legal same-sex marriages to file for benefits if they believe they might qualify(1). If we assume that Social Security will eventually afford same sex-couples the same rights and options given to all married couples, then this change could lead to significant additional payments for those same-sex couples who plan well.

Social Security will be the cornerstone of many retirement plans, even more so if you are fortunate enough to be eligible for the maximum monthly Social Security retirement benefit of $2,642 in 2014, assuming you are at your Full Retirement Age (FRA)(2). That would mean an annual benefit of $31,704 per individual and $63,408 per couple. And if you can delay benefits past your FRA, you’ll receive additional amounts from Social Security. Those born in 1943 or after will see their benefits increase 8 percent annually for each year they delay after after their FRA(3).

In general, Social Security planning is simpler when applied to an unmarried individual or to someone who is viewed as unmarried by Social Security (same-sex married couples while DOMA was in effect). However, married couples have more options for maximizing the total amount paid to them collectively. When used wisely, these options have the potential to be very lucrative. For example, if you and your spouse have decided to delay taking Social Security until age 70 because you will continue to work (often a good decision); then, as a married couple, you could use a “claim now, claim more later” strategy. Under this strategy one spouse could take a spousal benefit (at their FRA), under a restricted application, while allowing their own benefit to continue to grow via delayed retirement credits. Then anytime between ages 66 and 70, this spouse could switch to claiming benefits under their own earnings record and receive a higher benefit; assuming of course their earnings support a higher benefit. Spousal benefits are generally equal to one half of your spouse’s Primary Insurance Amount (PIA). In this example, this strategy allows for a free check from Social Security that would not have been available to a same-sex couple while DOMA was in effect. For this strategy to work, the worker (not the spouse) would need to file for and suspend their retirement benefits before the spouse could claim a spousal benefit. There are other steps involved in implementing this strategy but hopefully this gets you thinking. Learn more about this strategy from BC's Center for Retirement Research here.

The above example is just one possible way that a same-sex couple could receive additional benefits from Social Security thanks to the Supreme Court’s ruling on DOMA. There are others, but remember that Social Security is complicated and your optimal strategy depends on your personal circumstances. I would encourage you to consult with your own financial planner to discover the ways you may be able to maximize your family’s Social Security benefit.

D. Abraham Ringer, CFP® is a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which this article is directed. For more information please consult www.morganstanleyfa.com/ringer.

1 https://faq.ssa.gov/link/portal/34011/34019/Article/3545/Do-I-qualify-for-benefits-if-I-am-now-in-or-the-surviving-spouse-of-a-civil-union-or-other-legal-same-sex-relationship
2 http://www.ssa.gov/pressoffice/factsheets/colafacts2014.pdf
3 http://www.ssa.gov/retire2/delayret.htm

The information contained in this article is not a solicitation to purchase or sell investments. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. Morgan Stanley Financial Advisors do not provide tax or legal advice. The views expressed herein are those of the author, D. Abraham Ringer, and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC, Member SIPC www.sipc.org, or its affiliates.

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