How Social Security Discriminates Against Young Divorced Parents
By Larry Kotlikoff
A young divorced mom whose ex has filed for Social Security can’t collect the same spousal benefits as a young married mom whose husband has filed for Social Security. Photo courtesy of Flickr user Leon Fishman.
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
As has been the pattern for the last few weeks of Social Security Q+As, I’m starting this week with a question I’m posing from my alter ego, Larrylie.
Question: I’m divorced. My kids are under age 16. Can I collect a spousal benefit? I was married for more than 10 years. My ex was a true jerk. He ran off with my best friend’s cousin Sheila and left me with the kids to raise on my own. I should never have married an old cougar. Glad to be rid of him to tell the truth. But Sheila? Get outta here! She doesn’t hold a flame thrower to me.
My sister Bridget also married a geezer and has young kids. She’s hanging in there with him, although he’s no day in the park. The kids are collecting child benefits since he’s collecting his retirement benefit. And get this — she’s collecting a spousal benefit even though she’s only 35 because the kids are under age 16. And those benefits aren’t reduced because she’s so young. Nor are they being clawed back via the earnings test because she doesn’t work. Well, she works as a waitress, but it’s all under the table, so Social Security never learns about it.
Anyhow, Bridget told me to ask you if I can collect divorcée spousal benefits just like she’s collecting. I could sure use the money. Sheila’s squeezing my creep ex for every penny he’s got and the bills keep piling up.
MORE FROM LARRY KOTLIKOFF:
Larry Kotlikoff: Dear Larrylie, thanks for asking such a perspicacious question. Unfortunately, I’ve got bad news for you. Divorcée spousal benefits are not available to mothers of children under age 16 (even though your ex has filed for his retirement benefit) — unless the mother is 62 or older. If that were the case, you could collect those benefits with no reduction for being under full retirement age. And provided you didn’t file for your own retirement benefit, you’d get the full spousal benefit for an ex-spouse with a child in your care. Plus, if the kids all reached age 16 before you reached full retirement age, you could wait until full retirement age to apply just for your full divorcée spousal benefit.
But you aren’t age 62 or older. You are too young, and you’re divorced, therefore Social Security treats you differently from someone who is young but married. If you find this outrageous and unfair, I’m with you. But someone — probably a male — decided a very long time ago that divorced spouses with young children weren’t as worthy or needy as married spouses with young children. You might want to write your Congresswoman and ask her if she thinks this stinks and when she is going to fix it.
Susan Devillers — Ft. Walton Beach, Fla.: I divorced after 26 years of marriage. I did not work for most of that time. My Social Security benefit is $400. But the spousal benefit is $500. I accepted this and now I am told that it will cancel out $500 of the $1,000 alimony payment from my ex-husband. I did not realize that. Can I cancel his share and take my $400 and the alimony of $1000? And can I change it back in the future to get spousal death benefits?
Larry Kotlikoff: You can withdraw your spousal benefit, but you won’t get a higher spousal benefit if and when you reinstate it. At most, 85 percent of your Social Security benefits are taxable, whereas 100 percent of your alimony payment is taxable. So I think you’ll just shoot yourself in the foot by withdrawing your spousal benefit. I know that doing this may come with the gratification of reducing your ex’s income, but I don’t think you should hurt yourself to hurt him.
Julian P. Trevor — Houston, Texas: I have been getting Social Security payments since age 65. Is it possible to return the money and reapply for benefits beginning at age 70, one year from today?
Larry Kotlikoff: No, you used to be able to repay all benefits received on your work record at any point after your started receiving your retirement benefit and then reapply in the future and be treated as if you had never taken benefits. That’s no longer the case. You only have one year from the time you began taking benefits to repay them and clean your slate. What you can do is immediately suspend your retirement benefit and start it up again at age 70 at an 8 percent permanently higher value, after inflation. That’s well worth considering.
Carol Luckert — Jeffersonville, Ind.: I would like to take my Social Security at 62. My husband plans to retire in a year. Will we both receive our own Social Security checks based on our individual work histories? When he retires, will mine be increased to equal half of his?
Larry Kotlikoff: The answer is no. If your husband files for his retirement benefit before you file for yours at 62, you’ll be forced to take your excess spousal benefit as well as your own retirement benefit at 62. And both will be reduced because you’ll be taking them early. And your excess spousal benefit, which equals the difference between half of his full retirement benefit and 100 percent of your full retirement benefit, may well be zero (if the difference is negative, it’s set to zero). So doing what you intend to do may leave you collecting a reduced retirement benefit for the rest of your life and nothing else.
If you wait until age 66, your full retirement age, you can apply just for your spousal benefit and, indeed, collect half of your husband’s full retirement benefit (which may be less or more than he’s actually collecting as a retirement benefit depending on whether he takes his retirement benefit after or before his full retirement age). Then you can wait until 70 to collect a retirement benefit that is 76 percent larger than the retirement benefit you’ll get if you file at age 62.
If you do what you plan and your excess spousal benefit is positive, your total Social Security benefit will equal your reduced full retirement benefit plus your reduced excess spousal benefit. But bottom line: Be careful what you ask for!
Sue — Ormond Beach, Fla.: My husband died when he was 41 and I was 42. He was the sole provider for our family and then I began working outside the home after his death. I am now 56. What should my strategy be for Social Security?
Larry Kotlikoff: If you held onto your husband’s Social Security earnings statement, you can figure out, with the right software, which of two general strategies will maximize your lifetime Social Security benefits. The first strategy is take your retirement benefit early, starting as early as age 62, and then wait until your full retirement age (66 and two months) to take your survivor benefit. If you take both benefits at the same time, you’ll get the larger of the two — in other words, whichever one wipes out the other. Under this strategy, you let your survivor benefit grow through full retirement age, at which point it reaches its highest value.
The second strategy entails taking your survivor benefit first, possibly as early as age 60, and then starting your retirement benefit possibly as late as age 70, when it will start at its highest value.
Which strategy is best and how best to implement that strategy depends on your maximum age of life, how you value future benefits (see my last response in this column on that subject), and when you will stop earning money as well as how much you’ll earn before you retire.
Frank Ochiogrosso — Burlington, Vt.: I am 62 years old and have collected Social Security Disability Insurance (SSDI) for the past two years. I seem to recall that my benefits letter indicated a higher amount than my disability benefit when I reached my full retirement age of 66. The age 62 amount was less than the SSDI amount. I am considering working part-time for 10 months when I reach age 65, making enough that I will lose my SSDI benefit after nine months, and then going ahead and claiming my full retirement benefit at age 66.
The problem is I cannot be certain that the amount I receive at 66 is higher than the SSDI amount, as I no longer have my old benefit estimator and now that I collect SSDI, I cannot access that information on my statement. Is it normal for the full retirement benefit to be greater than the disability benefit? How would I know for certain?
Larry Kotlikoff: Your disability insurance benefit will convert to your full retirement benefit at full retirement age. Your full retirement benefit won’t be larger than your disability insurance benefit; it will be the same.
If you go off disability and end up getting some reduced retirement benefits before full retirement age, they will be permanently reduced based on the number of months before full retirement age that you receive retirement benefits after the earnings test has been applied. One option is for you to go off disability insurance and simply not file for early retirement benefits. In this case, when you reach full retirement age, your retirement benefit won’t be permanently reduced. Indeed, you can wait until age 70 to apply for your retirement benefit. It will be 32 percent larger, after inflation, than at age 66.
Jerry Lutz, the former Social Security technical expert who kindly reviews my answers each week for accuracy, added this more detailed response outlining the scenarios when a retirement benefit could be greater than a disability benefit.
Jerry Lutz: Hi Larry. Your answer to Frank isn’t wrong, but there are some rare circumstances when a person’s retirement benefit is higher than their disability benefit upon conversion at full retirement age. Everyone on disability is eligible for the regular retirement benefit calculation (i.e., best 35 years of earnings indexed to the year they attained age 60) when they reach full retirement age, but it is almost always lower due to the larger divisor. I would estimate that it is only higher in fewer than 5 percent of cases. The reason that it could be higher is due to the different indexing year, and because certain years of earnings are excluded from being used in the computation of disability benefits. Specifically, the first two full calendar years following the year of onset of a person’s disability are excluded.
In my experience, the only times that the retirement calculation came out higher was when a person had returned to work within a year or two after going on disability. That doesn’t appear to be involved in Frank’s case, so I think you’re answer is safe. But, there’s more.
If Frank went back to work now, he would still be at least technically entitled to disability benefits for a minimum of 45 months (i.e., a nine-month trial work period plus 36-month extended period of entitlement). In theory, he could be found to no longer be medically eligible, but that’s very unlikely. That would take him up to at least within a few months of full retirement age. A little known fact is that a person can file for reduced retirement benefits while they are still entitled to disability benefits. When that occurs, they can elect to receive either the reduced retirement benefit or the disability benefit. The two situations in which that may be advantageous are when the person is receiving workers’ compensation benefits, or when a person is in their extended period of entitlement (EPE) to disability benefits.
Workers’ compensation offset only applies to disability benefits, so in some cases, a person’s reduced retirement benefit amount is higher than their disability amount after offset. When a person has substantial gainful earnings within their EPE, their disability cash benefits are placed in suspense, but they can still be paid reduced retirement benefits subject to the annual earnings test limits. The Social Security Administration has an automated computer program that identifies situations where a person in workers’ compensation offset would benefit from filing for reduced retirement, but I know of no such program for identifying the EPE cases. You just have to hope for an alert and competent SSA employee.
The best part is that in these dual entitlement situations (reduced retirement and disability), the person receives a reduction factor adjustment at full retirement age. No permanent reduction is charged for the months of dual entitlement. And, the additional earnings can potentially result in a higher monthly benefit amount.
This entry is cross-posted on the Rundown — NewsHour’s blog of news and insight.