The Value of Future Social Security Benefits in the Division of Marital Assets
For many divorcing couples, future social security benefits are their single greatest economic asset and the key to their future economic well-being. Despite this fact, the vast majority of family lawyers and judges in Massachusetts fail to understand and address the value of Social Security when couples divorce.
This blog post gives sample Present Values of Social Security for low, middle, and high income earners who are divorcing at age 45, 55, and 65. Knowing how much social security is worth can help guide you to a fairer division of assets.
You can figure out the EXACT present value of your Social Security by following this link, but it is a laborious process.
Understanding the “Present Value” of Social Security or Pension Payments
The “present value” of a future stream of payments is simply the lump sum you would have to pay someone right now in order for them to guarantee you that future stream of payments. It is calculated based on interest rates, a person’s age and sex, the dollar value of the benefit, and the interval between the present time and the time when benefits start.
Using the present value of future streams of benefit payments allows you to compare the value of a future pension or Social Security to other assets in the present. Thus, you can directly compare the present value of Social Security with the current value of money you have in a bank account or the value of house equity you currently have.
Who Needs to Pay Attention to the Value of Social Security When Divorcing?
This value of Social Security in divorce is particularly important to understand and address in two specific situations:
Situation 1) When one spouse has a significant public pension from a Massachusetts union such as MTRS or SERS and the other spouse is not a public pension participant but has a full work history with contributions to Social Security.
The spouse who is a member of MTRS or SERS or other MA public unions does not pay into Social Security and will qualify for very, very low Social Security benefits. In place of Social Security benefits, they will receive a significant pension from the state.
Situation 2) When one spouse has worked many years, paying Social Security tax, and the other spouse has a little to no work history.
Situation #1: One spouse has MA public pension and the other spouse has Social Security
When couples get divorced in Massachusetts, they divide their marital assets (e.g., houses, bank accounts, cars, and retirement accounts) in a way that is “fair and equitable.” A couple, for example, can sell their house and share the profits, or they can transfer half of the part of their 401k account that was earned during marriage to the other spouse.
Similarly, pensions such as MA SERS or MTRS can be shared between divorcing spouses. A special legal document, called a DRO, gives the retirement board instructions to send a portion of future pension benefits directly from a participant’s pension to the alternate payee, ex-spouse once the benefits are in pay-out status.
By federal law, Social Security benefits can NOT be shared between a worker and his or her divorced spouse in the way that state, county, city, or private pensions can be shared. A worker will receive 100% of their Social Security benefits when they retire—the benefits will not be divided and shared with an ex-spouse.
The fact that Social Security benefits cannot be split with an ex-spouse has led many family lawyers and judges in MA to ignore the value of Social Security at the same time that pensions such as MA SERS and MTRS are divided between spouses. This can be extremely unfair to the pension participant.
In fact, the Massachusetts Supreme Judicial Court has ruled that it is proper to consider anticipated Social Security benefits when dividing other marital assets (Mahoney v. Mahoney 1997, pp. 446-447).
Take the example of a divorcing, 55-year-old couple where the wife is a teacher with an MTRS pension that will pay $3,000/month at retirement. Because she participated in the MA pension, she did not pay into Social Security and will not receive Social Security benefits. Assuming the couple were married during her entire career, in most divorce agreements, her future $3,000/month pension payments will be divided 50/50 with her ex-husband.
Her husband, in contrast, has been paying into Social Security, and he expects a $3,000/month Social Security payment at retirement. This benefit will not be shared! This division of assets is not fair to the pension participant, who loses half of her pension while her ex-spouse keeps 100% of his Social Security benefit.
You can see another example of this unfair division in this blog post from Divorce Financial Solutions.
Situation #2: One Spouse Has Long Work History and Other Spouse Has Little Work History
Income and assets gained during a Massachusetts marriage are generally considered to be marital property and belong to both spouses, even if only one spouse was earning the income. Because Social Security benefits cannot be divided, this can lead to an unfair division of assets if one spouse was a stay-at-home spouse and the other spouse has a long history of working and paying Social Security taxes.
If one spouse has little work history, they can still get Social Security benefits based on their ex-spouse’s work history under certain conditions. If the stay-at-home spouse was married to the working spouse for at least 10 years, has reached age 62, and is not remarried, the stay-at-home spouse can receive a benefit that is 50% of what their working ex-spouse receives. The working spouse’s benefit is not reduced—they still receive 100% of their benefit. The non-working spouse simply receives a benefit that is half the size.
This is unfair to the non-working spouse because income and assets—including 401k’s, IRA’s, and pensions—during marriage in Massachusetts are generally split 50-50. If an ex-spouse gets 100% of their Social Security amount and the other ex-spouse only gets 50% as much, the 100% spouse is getting 2/3 of the total value of the Social Security asset.
For example, a high earning ($160,000/year) 65-year-old who retires will receive Social Security benefits with a present value of $628,059. The spouse would thus receive benefits worth half as much, i.e., $314,029.50. Assuming that all the working years were during marriage, one spouse is walking away with $314,029.50 more in assets than the other spouse.
Present Value of Social Security for Low, Medium, and High Earners at Age 45, 55, and 65
The chart below gives the present values of Social Security for three levels of income and three ages.* To estimate the present value of your (or your spouse’s) Social Security, simply find the box that is closest to you in age and closest to you or your spouse’s annual income.
Lower Earner Value of Social Security
A lower earner is defined as someone earning $35,000/year at age 45, $50,000/year at age 55, and $60,000/year at age 65.
| Current Age | Current Annual Income | Present Value of Future Social Security Benefits |
|---|---|---|
| 45 | $35,000 | $210,764 |
| 55 | $50,000 | $278,932 |
| 65 | $60,000 | $346,178 |
Medium Earner Value of Social Security
A medium earner is defined as someone earning $65,000/year at age 45, $85,000/year at age 55, and $105,000/year at age 65.
| Current Age | Current Annual Income | Present Value of Future Social Security Benefits |
|---|---|---|
| 45 | $65,000 | $286, 016 |
| 55 | $85,000 | $390,163 |
| 65 | $105,000 | $508,834 |
Higher Earner Value of Social Security
A high earner is defined as someone earning $100,000/year at age 45, $130,000/year at age 55, and $160,000/year at age 65. Because only the first $168,000 of income (in 2024) is subject to Social Security tax, incomes above $160,000 do not meaningfully raise future Social Security benefits.
| Current Age | Current Annual Income | Present Value of Future Social Security Benefits |
|---|---|---|
| 45 | $100,000 | $373,975 |
| 55 | $130,000 | $535,817 |
| 65 | $160,000 | $629,.59 |
*Assumptions and methods.
Future social Security Benefits were calculated using the Social Security Quick Calculator https://www.ssa.gov/OACT/quickcalc/, which uses your current annual income (rather than your exact earnings record) to estimate your annual benefit. It assumes an annual COLA of 2.4%.
Present values were calculated using the GATT method and a 3.5% 30-year bond rate on ValueYourPension.com. Calculations were done for 45, 55, and 65 year old males who were retiring at age 65.