A U.S. Supreme Court ruling on same-sex marriage could open the doors for more than a million Americans to collect hundreds of thousands of dollars in additional Social Security benefits, according to a new analysis.
Married opposite-sex couples enjoy plenty of Social Security benefits, such as spousal and survivor benefits, which aren't currently available to married same-sex couples in the 13 states where gay marriage is illegal. The court, which is expected to rule later this month, will decide whether the Constitution requires states to allow same-sex marriage and to recognize those marriages nationwide. A favorable decision will mean that married same-sex couples in those states could apply for spousal and survivor benefits just like married opposite-sex couples.
There are about 390,000 married same-sex couples in the country, according to recent Gallup survey data, but an additional estimated 1.2 million adults living in same-sex domestic partnerships.
The Social Security Administration pays spousal and survivor benefits to married same-sex couples in states where their marriages are legally recognized after the Supreme Court ruled that part of the Defense of Marriage Act was unconstitutional in June, 2013.
So how much could a married same-sex couple living in a state where their marriage is currently illegal gain in additional Social Security benefits from a court victory? That depends on the couple, their earnings and lifespans. However, Financial Engines, an investment advisory firm that offers advice to retirement plan participants at larger employers, crunched the numbers to answer that question for one hypothetical same-sex couple: Henry and Logan.
Here's the scenario: Henry, 64, and Logan, 62, are married and live in a state where their marriage is not recognized. Henry's current salary is $80,000 per year, his full benefit amount is $2,500 per month if he begins collecting benefits at his full retirement age of 66 as a single person. Logan earns less and has a full retirement benefit of $1,100 as a single person. Since Logan is starting benefits early, his benefit is reduced by 25 percent to $825 per month. Financial Engines assumes that Henry dies at 84 and Logan dies at 90 to calculate their total Social Security benefits.
The couple's total Social Security benefits would be $797,280 as two single people. But if they were recognized as a married couple by the Social Security Administration after a favorable Supreme Court decision, their combined lifetime benefits would grow by $140,832 to $938,112.
And Henry and Logan could receive $200,000 more in Social Security benefits if they planned better and lived to their projected lifespans. "Claiming early is really a suboptimal strategy for most people," said Christopher Jones, Financial Engines' chief investment officer.
Financial Engines recommends that Henry and Logan use a "file and suspend" strategy to boost their benefits. The strategy can increase benefits for the couple with a combination of spousal benefits and credits for delaying retirement. At least one member of the couple must have reached full retirement age, which would be 66 for Henry and Logan.
Each year you wait to claim Social Security can add up to 8 percent to your monthly retirement benefits.So if Henry files for benefits at 68, two years after his full retirement age, and suspends them, Logan could receive spousal benefits at 66 while Henry's benefits continue to grow. Then Henry can receive his maximum Social Security benefits at age 70.
"Every couple is different, but this is a good analysis for a couple pretty close in age that has paid into the system," said Tim Bresnahan, a vice president at Northern Trust's wealth planning advisory services group with a focus on planning for LGBT individuals.
Whatever the Supreme Court decides, Social Security is a huge part of retirement savings for both same-sex and opposite-sex married couples, representing about 38 percent of the income for senior Americans. "It is important that all married couples, regardless of orientation, make the most informed claiming decisions that they can to maximize their total benefits," Jones said.