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Gay Couples Can Now Cash In on Social Security by Getting Married

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The Exchange

By Laurence Kotlikoff

The Supreme Court’s decision to sustain gay marriage in states where it is legal and to extend federal benefits to gay married partners by declaring the 1966 Defense of Marriage Act unconstitutional represents an enormous advance for our country. No one has a monopoly on language, and if gay people wish to use the word “marriage” to solemnize their devotion to one another and legalize their financial commitments, they should have every right to do so.

As of Wednesday, they do have that right in 13 states, where gay marriage is legal, including the biggie -- California. Amen! And it’s now time for the other 37 states to fall in line.

But there’s more good news for gay couples. Unmarried gay couples in the 13 states as well as those who move to those states can, as of this week, cash in on a potentially very large Social Security bonanza.

Many gay couples may not know this, but married folk get treated better – a whole lot better -- than single folk by Social Security. Specifically, Social Security provides spousal and survivor benefits to one’s spouse. And you only have to be married one year to get spousal benefits and nine months to get survivor benefits. Moreover, if your partner has a child below age 16, you can collect spousal benefits regardless of your age.

To illustrate the potential financial benefits of gay couples tying the knot in one of what will surely be called the Original 13 States, I just checked my company’s ESPlannerPLUS financial planning program and ran the case of Jerry and Ken, who are both 55 and live in California. They both earned middle class salaries until now, have a modest home with a mortgage, and $500,000 in regular assets. But Ken just retired because Jerry got a big raise and is now pulling down $200,000 a year. Jerry likes his job and will stick with it until 65.

If Ken and Jerry play their Social Security cards right, they can rake in an extra $60,000 in Social Security spousal benefits – for free, just for getting married! That means Jerry has to file for his retirement benefit at 66 and suspend its collection, permitting Ken to take just his spousal benefit based on Jerry’s earnings record. When Jerry and Ken reach 70, they both begin taking their benefits, which thanks to Social Security’s Delayed Retirement Credit, will start at the highest possible values.

Getting married comes with another financial advantage for Jerry and Ken, at least for a while. The couple lowers their income taxes by $3,000 to $5,000 over the next nine years because Jerry would otherwise get nailed filing as a single, given his high earnings. So for this couple, there is a single-filer penalty, not a marriage penalty during the years Jerry works.

The downside here is that once Jerry retires, both face a marriage penalty and end up paying $1,000 to $2,000 more in federal taxes for many years. But the two are better off on balance over the rest of their lives.

Indeed, their sustainable discretionary spending rises from $78,595 a year to $82,010. That’s a permanent increase of $3,415 each year, measured in today’s dollars. Let me say this differently: Jerry and Ken can spend a few minutes in front of a Justice of the Peace or go for a supersized wedding and raise their living standard by 4.3% with no risk whatsoever. What a nice gift care of Justice Kennedy!

The story gets better. After Jerry and Ken are married for 10 years, they can get divorced (but still cohabitate), which would permit both of them to collect what amounts to free spousal benefits. Divorcees have an advantage in this respect over marrieds, since only one member of a married couple can collect free spousal benefits. Plus, they’ll lower their taxes. All in all, this revised strategy -- getting hitched, getting unhitched, but always living together -- means a roughly 8% higher lifetime living standard.

I’m not saying every gay couple that marries will receive such a big financial bonus. Some will get less and some more. What’s clear, though, is that with the right moves, the Supreme Court decision can make a significant material difference to millions of gay couples.

It’s also going to put the Social Security system into even greater hock. According to table IVB6 of the 2013 Social Security Trustees Report, released in April, Social Security is 32% underfinanced, meaning its taxes need to go up, immediately and permanently, by 32% or its benefits need to be cut, immediately and permanently, by 23%. This fact – that Social Security is seriously broke – is not, however, an argument for denying gay couples their right to get married and their Supreme Court-given right to equal benefits and taxes under the law if they live in one of the 13 states that truly treats everyone as equals.

Laurence Kotlikoff is an economist at Boston University and co-author of "The Clash of Generations."