How Poor Advice May Have Denied This Woman Extra Social Security Benefits
By Larry Kotlikoff
Rumors about Social Security policies abound; it’s important to consult the Social Security Administration, especially their technical experts, about your specific circumstances. Photo courtesy of Tetra Images.
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 here, for free, in its “basic” version
Babs — Twin Cities, Minn.: Your advice on your website is very helpful, but I have not had much luck finding whether my scenario is presented anywhere within the pages of “Ask Larry,” so I’m hoping you can put my mind at ease.
I am about to turn 61, and I have been receiving disability income (from the Social Security Administration) since 2003. I had been a full-time worker for well over 30 years prior to becoming disabled.
I was first married for 11 years and then divorced in 1983. Then I was legally re-married to my second husband, for over 15 years, who died almost seven years ago at the age of 53.
When I became widowed, I was told that when I notified the Social Security Administration (SSA) of his death, my Social Security Disability Insurance (SSDI) would automatically stop all together because it would convert to a survivor benefit — and because I was disabled and under the age of 60 — the amount could either increase or decrease; I would not know which until the SSA determined the amount. And so, I panicked and I did not notify the SSA of his death back then (nor ever since).
My reasoning was simply because at the time of his death, not only had he become my caregiver, but I relied on him financially, even though he was no longer employed and had started a small home-based business nearly three years prior to his death.
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Our lifestyle had already changed considerably and at the time, his modest and unstable income of late had barely provided enough to cover our housing related expenses. My SSDI income was used for other incidentals such as groceries, prescriptions and gas (thank goodness our home was mortgage-free because we often struggled to make ends meet). I have two questions. First, did I make a mistake not notifying the SSA of his death? And second, how can I best proceed from here on out? Which benefit pays better in my situation — can I continue receiving my disability (and later my retirement) benefit and also receive any of the other spousal or survivor benefits concurrently? And at what age should I make the change in benefit status and what benefit should I seek?
Larry Kotlikoff: It seems you, like so many others, have been hit with very bad information or advice. From what you wrote, though, it sounds like the source of this bad advice was not Social Security itself.
Regarding your situation, the act of asking about available benefits and explaining that you are both divorced to one spouse after a 10 plus-year marriage and a survivor of another does not trigger their payment or force you to file for anything. You need to compare your highest lifetime benefits associated with collecting on the two spouses and choose the strategy that produces these highest benefits.
What you have done is possibly pass up some disabled widow survivor benefits that are available starting at age 50. You could have been receiving 71.5 percent of the difference between your deceased husband’s primary insurance amount and your own primary insurance amount in addition to your disability benefit. There is a 12-month retro-activity limit, so you may have foregone about six years of extra benefits based on the bad advice.
At this point, you should go into the Social Security office right away and see if you qualify for this additional disabled widow’s survivor benefit. The nice thing about it is that at full retirement age, the 71.5 figure rises to 100 percent. In other words, disabled widows don’t face reduced survivor benefits for their entire lives — just up through full retirement age. Stated differently, you have nothing to lose by applying for a survivor benefit.
Once you reach full retirement age, you should consider withdrawing your own retirement benefit (to which your disability benefit automatically converts) and then taking either your full survivor benefit or your full spousal benefit (on your ex-spouse’s earnings record). At 70, you could start your retirement benefit, which will likely equal your disability benefit times 1.32.
Brenda Howl — Arlington, Texas: How long did you need to be married to someone to be allowed to collect their Social Security?
Larry Kotlikoff: If you are divorced or thinking about getting divorced, you need to have been married for 10 or more years to collect divorcée spousal and survivor benefits. If you are thinking about getting married, you need to be married only for one year to collect spousal benefits and just nine months for window(er)’s benefits. So if you are “living in sin,” consider getting married on Social Security’s dime. This is especially the case if your potential hubby is older or otherwise may pass away well before you go heavenward.
Now, please realize, as I’ve been warning readers of this column for over one year, if you are married, there is one and only one way to collect a full spousal benefit (half of your new husband’s full retirement benefit). First, you need to reach full retirement age and apply just for your spousal benefit. Second, you can’t have filed for your own retirement benefit. And third, your husband needs to have filed (but possibly have suspended) his own retirement benefit. If your new husband files before you reach full retirement age and you file for your spousal benefit, you’ll be deemed to have filed for your retirement benefit too, which means your spousal benefit will be computed as your excess spousal benefit, which could well be zero. The excess spousal benefit is your full spousal benefit (half your husband’s full retirement benefit) less 100 percent of your full retirement benefit. Given the progressivity of Social Security’s benefit formula, this difference could be negative even if you were the lower earner. If it’s negative, it’s set to zero. Even if the excess spousal benefit is positive, it will be reduced based on the early spousal benefit reduction formula.
If your new husband dies after nine months (sorry to be morbid, but you asked), you can collect reduced survivor benefits as early as age 60. But be strategic about when to take your survivor and retirement benefits since one will wipe out the other. They key is to take the smaller benefit first and generally, as early as possible, then take the larger benefit as late as possible, by which I mean when it has reached the point where its value will no longer increase the longer you wait to take it.
Judy Baran — Hatboro, Pa.: My 70-year-old husband passed away and he was collecting Social Security at 62. I am 64 and still working. Will I receive a portion of my husband’s Social Security?
Larry Kotlikoff: Very sorry for your loss. Yes, you can potentially collect a survivor benefit. I say “potentially” because if you take your own retirement benefit and your survivor benefit at the same time, you’ll get the larger of the two benefits.
So I’d normally recommend you take the smaller of the two earlier and then switch to the other after you reach the point where that higher benefit no longer rises with age.
But in your case, because your husband took his retirement benefit early, your survivor benefit is calculated based on a formula informally called the widow(er)’s limit — or the RIB LIM, which means your survivor benefit will be 82.5 percent of your husband’s full retirement benefit if you take it now or if you wait until your full retirement age.
In other words, for you, there is no advantage to waiting to collect your survivor benefit. There is a possible advantage — and a large one — from waiting to collect your retirement benefit. If you wait, for example, until age 70, when it’s as large as possible, it may exceed your survivor benefit, in which case you’ll collect it rather than your survivor benefit.
But your retirement benefit may exceed your survivor benefit even before age 70. So both Jerry Lutz, the former Social Security technical expert who checks over my responses, and I think you should apply right now for your survivor benefit and then apply for your retirement benefit at or after the point that your retirement benefit exceeds your survivor benefit, which, again, may never happen.
One big caveat. The annual earnings test may prevent you from receiving all or part of your potential survivor benefit before you reach full retirement age.
Clyde Tyler — Rocky Hill, Conn.: I was a police officer for 33 years. Prior to that I worked at various jobs, but I am 10 quarters short to collect Social Security. I had always planned on working again after retiring from the police department in order accrue the required Social Security quarters. However, as I was preparing to retire, I was diagnosed with oral cancer, which left me unable to work. Is there any way to collect from my current wife or my ex-wife? Things are really hard right now, and any help would be appreciated. I was married to a teacher for 27 years, divorcing in 2001. I remarried in February of 2013, at the age of 60, to a 62-year-old woman, who has worked most of her life. Thank you very much.
Larry Kotlikoff: You can’t collect spousal benefits on your ex-spouse’s earning record because you are married. On the other hand, since you re-married after age 60, you can collect a survivor benefit based on your ex once your ex passes away. Normally, a divorcée who remarries can’t collect survivor benefits based on his or her first spouse. But if you remarry after age 60, Social Security makes an exception.
But your ex was a teacher, whose earnings might not have been covered by Social Security. If she were covered from Social Security-covered employment outside of teaching, her primary insurance amount (upon which your own spousal benefit would be based) would be reduced due to the Windfall Elimination Provision. The good news is you can collect on your second wife’s earnings record. The bad news is that your spousal benefit will be hit by three whammies if you take it starting at age 62. First, it will be reduced due to the Government Pension Offset (GPO) provision. Second, it will be reduced due to the early spousal benefits reduction factor. And third, your current wife will need to apply for reduced retirement benefits in order for you to be eligible to collect a spousal benefit.
The GPO may also prevent you from drawing a surviving divorced spousal benefit — if your first wife dies before you.
Emery Butler — Boulder, Colo.: I will be 62 next year. My wife is 69. The only Social Security benefit that she qualifies for is as my spouse. Can I file and suspend so that she begins to get her spousal benefit? I’m still working. How much will she receive? I’ve done a lot of reading and research but have not been able to find an answer that fits our circumstance. Thanks.
Larry Kotlikoff: You can’t file and suspend before full retirement age, which is 66 for you. The only way to get your wife a spousal benefit (which would equal half of your full retirement benefit) based on your earnings record is for you to file to collect reduced retirement benefits right now. But if you are still working, your reduced retirement benefit and her spousal benefit may both be reduced or wiped out by the earnings test. If the earnings test wipes out your benefits, it will be made up to you in the form of permanently higher benefits once you reach full retirement age. In this case, you don’t really lose anything from the earnings test, but you will permit your wife to become eligible for Part A Medicare coverage when you reach age 62.
One strategy to consider is filing for reduced benefits sometime prior to reaching age 66 and then suspending your retirement benefit at 66 and starting it up at a 32 percent larger value at 70.
Maureen Noteboom — Wausau, Wis.: My husband and I plan on stopping work in our late 50s and living on retirement savings until we reach age 70. At age 70, we’ll start receiving the maximum Social Security benefit. I am six years younger, so I cannot start receiving a spousal benefit until my husband is almost age 73. Is there any value to either of us “filing and suspending” our Social Security? We do not intend to have much earned income after we stop working. Thank you.
Larry Kotlikoff: Given your age difference, there is no value to your husband filing and suspending. When you are 67 — which I presume is your full retirement age — you can apply just for your spousal benefit and collect “free” spousal benefits for three years prior to reaching age 70 and going for your own retirement benefit. You could file and suspend yourself at 67. This would let your husband collect an excess spousal benefit starting at 73. But it’s not likely to be positive or large compared to your collecting your full spousal benefit. Expert software can figure out what’s best here.
This entry is cross-posted on the Rundown — NewsHour’s blog of news and insight.