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This Social Security Mistake Could Cost You Thousands

The Motley Fool logo The Motley Fool 1/31/2020 Katie Brockman

Retirement is more expensive than ever, and if your savings aren't keeping up, you're not alone: The average retirees in the U.S. are expected to outlive their savings by around 10 years, according to a study from the World Economic Forum.

If you run out of cash before the end of retirement, you may have to resort to depending on your Social Security benefits to make ends meet. But there's a lot of confusion surrounding Social Security, and not everyone knows how to maximize monthly benefits. And sometimes, just one mistake could ultimately cost you thousands of dollars.

One factor that can seriously impact your benefits

There are several factors that can affect how much you receive each month, such as the age you begin claiming benefits and how much you earned during your career. But there's one thing that can have a huge impact on your benefits that isn't often mentioned: your marital status.

This can affect how much you receive each month -- and even whether you receive benefits at all. And if you're divorced and decide to remarry later in life, that could end up being a particularly costly mistake financially.

Divorcees may be entitled to collect benefits based on their ex-spouse's work record if they meet a few eligibility requirements. You must have been married at least 10 years, for example, and you have to be at least 62 years old to file for benefits. One other key requirement, though, is that you cannot currently be married in order to receive divorce benefits. 

So that means if you're currently receiving divorce benefits based on your ex-spouse's work record, you'll lose those benefits if you decide to remarry. You could be entitled to collect spousal benefits if your new partner is eligible to receive Social Security, but if you marry someone significantly younger who won't qualify for benefits for several years, you'll be out of luck.

Also, even if you are entitled to receive spousal benefits based on your new spouse's work record, if your current spouse is entitled to less money in benefits than your ex-spouse, your monthly checks may be smaller than if you continue receiving divorce benefits.

What this means for your future benefits

Marriage is always a big decision, but when you're retired and receiving Social Security benefits, it's crucial to think about how this decision affects your finances. If you're receiving divorce benefits and are depending on that money to make ends meet, consider whether you and your new spouse will be able to survive without those checks if you lose them by getting married.

Of course, you'll still be entitled to your benefits based on your own work record regardless of your marital status. But you're typically only qualified to receive divorce or spousal benefits if your own monthly checks are relatively small -- or if you haven't worked enough to receive any benefits at all based on your own work record.

The maximum you can receive in divorce or spousal benefits is 50% of the amount your spouse or ex-spouse is entitled to collect by claiming at that person's full retirement age. If you're receiving more than that amount based on your own work record, you won't qualify for these other types of benefits in the first place.

In other words, the people who will be most affected by this rule are likely the ones who need the money the most. If you're receiving little to nothing each month based on your own work record, you lose your divorce benefits, and you're not eligible for spousal benefits yet, you may be left with no Social Security benefits at all. That could spell disaster if you need that money just to get through retirement, and it also makes it all the more important to double-check how any major life decisions will affect your financial situation.

Social Security benefits can be complex and confusing. But if you're going to depend on them in retirement, having a solid understanding of what types of benefits you're entitled to and the factors that affect them can maximize your monthly checks and avoid costly mistakes.

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