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Social Security Benefits to Take While You Wait Until 70
By Larry Kotlikoff
Larry Kotlikoff answers your Social Security questions. Creative Commons photo courtesy flickr user 401(K) 2012
Larry Kotlikoff's Social Security original 34 "secrets", his additional secrets, his Social Security "mistakes" and his Social Security gotchas have prompted so many of you to write in that we now feature "Ask Larry" every Monday.
We are determined to continue it until the queries stop or we run through the particular problems of all 78 million Baby Boomers, whichever comes first. Kotlikoff's state-of-the-art retirement software is available, for free, in its "basic" version. His considerable and often very useful output is available on his website.
Jim Norton -- San Rafael, Calif: I am 63 and intend to retire at 65. My wife is 60 and also will retire at 65. We are both high earners. What is my best strategy for maximizing Social Security? I'd like to defer my own claim until age 70 but will need something between ages 65 and 70.
Larry Kotlikoff: Your best strategy is likely either A or B. In A) When your wife reaches 66 -- her full retirement age -- you file for your own retirement benefit and immediately suspend it. You then restart your retirement benefit at 70, when it will be as large as possible. Your wife, meanwhile, applies only for a spousal benefit based on your work history, which will equal half of your full retirement benefit (since she will not have filed before full retirement age for her retirement benefit). Finally, when your wife reaches 70, she applies for her full retirement benefit.
MORE SOCIAL SECURITY ANSWERS
Or you can do B) Your wife files for Social Security when you reach full retirement age (66); you file at full retirement only for a spousal benefit based on your wife's earning record (which will equal half of her full retirement benefit). You still file for your maximum retirement benefit at 70, your wife suspends her retirement benefit when she reaches full retirement age and your wife restarts her retirement benefit when she'll get the max, at age 70.
How much does it pay to wait? As I explained to PBS NewsHour readers in one of my most popular columns ever here on Paul Solman's Business Desk, fittingly titled "Why You Should Wait Until 70," it is the best insurance you can "buy" against outliving your savings.
Victoria Chance -- Hanover, Pa.: I became a widow on Aug. 28, 2012. My husband's birthday: Nov. 6, 1948. My birthday: Sept. 28, 1949. Will I have to choose his benefits or mine when it comes time to collect Social Security?
Larry Kotlikoff: I am truly sorry to hear about your loss, and I'm glad you gave me this opportunity to do something useful, if only for a few minutes, on your behalf.
The answer to your question is "yes and no." For a while, you can take one benefit and not lose anything because you are letting the other benefit grow. Once the other benefit stops growing (because the Survivor Benefit Reduction Factor or Delayed Retirement Credit no long apply), you'll want to take the larger of the two.
Your two best options are, I believe, either A) you start taking a reduced retirement benefit now, and then, at 66, when you reach full retirement age, you start your spousal benefit, when it will be as high as possible; or B) you start taking a reduced survivor benefit now and wait until 70 to collect your retirement benefit, when it will be as high as possible.
Which option is best depends on your unreduced survivor benefit (the benefit your husband was receiving or would have received at full retirement were he not receiving when he passed away).
Be very careful when you first go to the Social Security office that you not apply for both benefits. The folks you'll encounter at the Social Security office have a range of knowledge about the system's thousands upon thousands of rules. They also have a range of training. Not everyone you'll encounter is a technical expert. I've received lots and lots of emails from people who feel they received bad advice from their local Social Security office. Of course, I'm not receiving emails from people who are happy with the advice they received, so my sample is biased. But just be aware that people in the local offices can and occasionally do make mistakes. Hence, it's important to know when you meet with them precisely what you want to do and make sure they are filing the right forms as opposed to doing what they think is best in your case. Ask them to write down what you have decided to do and sign it so that they are on record with your plan to do either A or B.
Betty -- Phoenix, Ariz.: My husband is 69, retired at 65. I'm 61 this year and would like to retire and get on with the fun part of life. Can I collect at 62 under his account, receive the 50 percent of his benefit and get 100 percent later under my own earnings at 66 or even wait to 70? I've been led to believe that since my earnings are higher than his were, I will only be able to collect under my account. I don't want to give up the 25 percent. We each have pensions and savings to help get us to my full retirement age, but I'm reluctant to start drawing on that too soon.
Thanks for this column, I've learned a lot.
Larry Kotlikoff: You can't receive a spousal benefit until your husband files for his retirement benefit. But if he files before you apply for your spousal benefit, when you apply for your spousal benefit at 62, you will be deemed to be applying for your retirement benefit as well. In this case, given your circumstances, you'll get a reduced retirement benefit and zero spousal benefit for the rest of your life. Your spousal benefit will be computed as the excess spousal benefit, which is the difference, if positive, and zero, if negative, of A) half of his full retirement benefit and B) 100 percent of your full retirement benefit. Since you say you were the higher earner, the excess spousal benefit will surely be negative and, thus, set to zero.
If you wait until full retirement age, the deeming goes away. At this point, you can apply just for your spousal benefit. And, get this, it will calculated as your full spousal benefit, namely simply half of your husband's full retirement benefit with no subtraction of your full retirement benefit.
I think your best strategy is to have him wait until 70 to collect his retirement benefit; you wait until full retirement age -- 66 -- to collect just your full spousal benefit (again, equal to half of his full retirement benefit); you wait until 70 to collect your retirement benefit, which will be up to 76 percent higher than what you'll get if you start collecting at 62. Note, the full spousal benefit is half of his full retirement benefit, not half of the benefit he'll start collecting at 70. What he'll start collecting with be his full retirement benefit augmented by the Delayed Retirement Credit, which raises retirement benefits by 8 percent per year for each year you wait to collect between full retirement age and age 70. There is no compounding, so if you wait 4 years, your benefit starts 32 percent higher, which is 4 times 8 percent.
Heather -- Daly City, Calif.: I just turned 70 and will begin collecting Social Security benefits for the first time this month, four years after full retirement age. I am continuing to work full-time and intend to work a few more years if possible. As I'll be making more than in previous years, and will continue to pay Social Security taxes, will my benefits be increased?
Larry Kotlikoff: Yes, if your earnings end up exceeding one of the prior 35 highest covered earnings years in your earnings record. See another of my most popular columns here on the Business Desk where I explained how I myself can increase my own benefits by 20 percent if I work past 70: "How Social Security Pays You to Work Forever"
Jose Lopez -- San Diego, Calif.: I plan to retire at 66 but my wife is five years younger than me. If I retire, she would not have medical insurance because her employer does not offer it. What should I do?
Larry Kotlikoff: This isn't a Social Security question but if you're asking me: Don't retire. Keep working.
Retirement is boring and expensive. You have all this free time on your hands and it costs money to stay entertained. Plus, Jose, as I say in my answer to Heather of Daly City, not all that far from you in San Diego, there is, potentially, a big advantage to continuing to work in terms of larger Social Security benefits when you finally start collecting. There is no earnings test once you reach full retirement age. But I would advise -- and I think software I've developed would concur -- that you should consider waiting until 70 to start collecting your retirement benefit and consider having your wife start her retirement benefit at 62. You'll be 67 and can then apply just for a full spousal benefit equal to half of her full retirement benefit. When she reaches full retirement age, she can suspend her benefit. It's critical that she pay her Medicare Part B premium out of pocket. But she can start her own retirement benefit up again at 70, when it will be 32 percent larger than when she stopped taking it. Between full retirement age and age 70, she may be able to collect an excess spousal benefit, depending on the size of her full retirement benefit and yours. The excess spousal benefit is calculated as half of your full retirement benefit less all of her full retirement benefit. This strategy does, however, need to be compared with your waiting until 70 to collect your retirement benefit, having your wife A) wait until full retirement age to collect her full spousal benefit and B) wait until 70 to start her retirement benefit.
Kani -- Sunset Beach, Hawaii: I am 62 and still working while my husband (65) is already collecting Social Security. (He started at 62.) I plan on working til 66 or maybe longer. (I am the higher wage earner.) Can my husband request the spouse benefit now or does he have to wait til he's 66?
Larry Kotlikoff: You need to file for your retirement benefit in order for him to be eligible to collect a spousal benefit. Probably the best option is for you to wait until full retirement age (66) and then apply just for your full spousal benefit, which will equal half of his full retirement benefit because you didn't make the mistake of filing for your own retirement benefit. You can then apply for your retirement benefit at 70, when it will be up to 76 percent higher than at age 62. When your husband reaches full retirement age, he can suspend his retirement benefit and start it up again at 70, when it will be 32 percent larger than when he suspends it.
Rick -- Burlington, N.J.: My wife is on Social Security Disability of about $1500/month. Our two children get survivor benefits of approximately $720/month for a family maximum of about $2200/month. I work, but if I died, would the children be entitled to any additional money based on my survivor benefits? I have approximately the same work history as my wife.
Larry Kotlikoff: Your unmarried children would be able to collect survivor benefits, provided they are A) younger than age 18 or B) age 18-19, but full-time students in a grade no higher than 12 or C) 18 or older and disabled, with a disability that started before age 22.
Your wife, if she does not remarry, would be eligible to collect survivor benefits as a mother while your children are under age 16. There are also survivor benefits available starting at age 50 to widowed disabled workers who became disabled before the spouse dies or within 7 years of the spouse's death. My understanding is that the wife can receive the larger of the two benefits.
Jerry Lutz, the former Technical Expert with Social Security who helps me on disability issues and checks over my regular Social Security answers, provided this extra discussion of your case.
"The wife/widow would not be eligible to draw both benefits, at least not in full. Here's how it would work, using an example:
Her PIA (primary insurance amount) = $1500. His PIA = $1500. She's receiving $1500/month in disability benefits, and her children get $360 each due to her family maximum of $2220. He dies, leaving the same two minor children currently receiving on her account. (By the way, he says the children currently receive survivor benefits, but they're obviously getting auxiliary benefits.)
Let's say his family maximum would be $2700 (it can be higher for retirement/survivor benefits than for disability). Widows with minor children (under 16) and eligible surviving children are each eligible for up to 75 percent of the PIA. In this case, that would be $1125. If the widow wasn't already getting disability, she and the two kids would each get $900 (i.e. one third of the family max), but since her disability is more than the $1125 she could potentially get on his account, she would just get her disability benefit of $1500, and the kids would each get $1125 on dad's account, instead of the $360 they had been getting on mom's account.
In some situations, the family maximums on the two records can be combined when children are entitled on both records, but that wouldn't be needed in this case, since everyone would receive their highest possible benefit without combining the maximums. However, if there were three or more eligible children, the maximums on both records would be combined so that more could be paid.
Now, let's say the kids are all grown and no longer eligible, and the wife is over age 50. In the above example, she would still receive nothing from his account, since her PIA is equal to his. However, say his PIA was $2000 instead of $1500. If she was between 50 and 60, she could receive a disabled widow's benefits, which would amount to 71.5 percent of the difference in their PIA's, or $357.50 (i.e. ($2000-1500) x .715). This would be added to her disability benefit of $1500. Also, the 28.5 percent reduction would be removed when she reached FRA, raising her total monthly benefit to $2000."
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