MAKING SENSE -- April 22, 2013 at 11:21 AM ET
Why You Should Never Wait Until After 70 to Take Social Security
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.
Mikhail -- Tempe, Ariz.: I am 66 and planning to work until 72 when my wife will reach 66. Will I have larger benefits if I wait until 72 to start to take them?
Larry Kotlikoff: Do not wait beyond age 70 to collect your retirement benefit. There is no increase in your retirement benefit for waiting beyond age 70. None at all. So if you wait until age 72, you will simply give up two years of retirement benefits for nothing. These are benefits you earned.
You should, of course, wait until 70 if you can afford to, since your benefit will be 32 percent higher than if you were to take benefits now, at age 66. When your wife reaches age 66, she can apply just for your spousal benefit and wait until age 70 to collect her largest possible retirement benefit. If she reaches age 66 before you reach age 70, you can file for your retirement benefit and suspend its collection until age 70. This filing and suspending will permit your wife to collect her spousal benefit.
If you file and suspend before your wife reaches full retirement age (66) and she applies for a spousal benefit, she will be forced to take a reduced retirement benefit and her spousal benefit won't equal half of your full retirement benefit. Instead, her spousal benefit will be calculated as an excess spousal benefit equal to her full spousal benefit less her own full retirement benefit (her retirement benefit were she to wait until 66 to collect it). If this excess benefit is negative, it will be set to zero. So be careful what you do here!!
Janet Kohler -- Centennial, Colo.: I draw Social Security survivor benefits on my deceased husband's account. I have remarried. If my current spouse dies, can I draw survivor benefits on his account also?
Larry Kotlikoff: I take it you remarried after age 60. Otherwise you could not be collecting a survivor benefit from your deceased husband while being married. I presume you are not collecting a spousal benefit from your current spouse. You cannot collect a spousal benefit from a current spouse and a survivor benefit from a deceased spouse simultaneously. You will receive the larger of the two benefits.
If your current husband dies you can collect the larger of the two survivor benefits. But again, you cannot collect two survivor benefits. No one can.
MN1947 -- New York: I am a single, divorced woman who was married for less than 10 years. I turned 66 this year and am eligible to receive full benefits. I am still working part-time and the Social Security Administration projects taxable income of about $17,000 annually if I work until age 70. I collect a municipal pension which is only taxed federally as long as I remain in New York or another state without income tax.
I have gotten conflicting advice as to whether to wait until I'm 70 to take Social Security. Many people tell me it's better to take it now because of vagaries in future benefits and it's more money in my pocket now, especially if I have an emergency. I would plan to bank the Social Security money I receive now as I have sufficient income for the moment.
The projected difference in my monthly benefits if I take them now as opposed to age 70 is about $750 per month, assuming I keep working part-time. My figures before taxes show I would break even at about the age of 78 if I took them now as opposed to waiting.
Obviously, the greater dollars if I wait would start to benefit me only after the age of 70. I have no children. My health is average; both of my parents died before the age of 72. Do you recommend waiting until age 70 for someone in my category or taking benefits now?
Thank you for your help.
Larry Kotlikoff: I know I can sound like a broken record on this issue to those of you who read this page regularly but, once again: You can't count on dying on time or at some break-even date. You have sufficient income now, you write. That means you don't need to start taking benefits in order to live. Do you really want to run the risk of outliving your savings? Is that less likely than an "emergency" in the next four years that you won't be able to afford? An emergency that four years of Social Security will pay for?
So my advice is to work as long as you can, because Social Security pays you more if you do so, and to wait until 70 to collect your retirement benefit then.
As for your ex's earnings record, you can't receive any benefits on it because you weren't married for 10 or more years.
Rich -- Dayton, Ohio: My wife is two years, three months older than me. She has not worked 40 quarters. What is the youngest age that she can get spousal benefits if I wait until 70 to retire?
Larry Kotlikoff: As soon as you reach full retirement age, you can file for your retirement benefit and suspend its collection. This will permit your wife, at that point, to apply for a spousal benefit based on your work record. And you can then wait until age 70 to reactivate your own benefits and collect them at that point, starting at their highest possible value.
You don't say what age you are, but for you -- and those who are wondering when the age extensions kick in -- here are the numbers, by birth year, courtesy of the Social Security website.
1955: 66 and two months
1956: 66 and four months
1957: 66 and six months
1958: 66 and eight months
1959: 66 and 10 months
1960 and later: 67
Note that if the maximum benefit retirement age isn't extended, Social Security recipients will be foregoing less and less by waiting until 70.
Judy: I am 62, started drawing my Social Security last November. I was married for 26.5 years and am now drawing $200 off my ex. We made a lot of money, sometimes paying $90,000 in income tax, and should have paid a lot of Social Security tax too. I think I should be drawing a lot more than $200 off him. What can I do? I really need more money to live on. I know that amount can't be right.
Larry Kotlikoff: If you have no other funds to live on, you are stuck. There is nothing more you can get from the Social Security system and it doesn't sound like you can get more from him either.
If you have other savings or retirement accounts to tap (though it doesn't sound as if you do), you could repay all the benefits you have received so far from Social Security, then wait until full retirement age -- in your case, 66 -- to collect your full spousal benefit (equal to half of your spouse's full retirement benefit). You could then wait again until 70 to collect your own retirement benefit, when it would be as much as 76 percent larger than it is now.
Dan Maher -- Portland, Ore.: If Social Security's cost of living adjustment (COLA) is going to be capped, then these politicians should also forego any raises until the cap is lifted. Idiotic!
Larry Kotlikoff: No one is suggesting that Social Security's COLA would be capped. What President Obama included in his proposed budget, in what he called a compromise with those insisting on "entitlement reform," is that the formula used to calculate the Social Security COLA would be changed to what's called a chain-weighted consumer price index. This will likely reduce the degree of inflation adjustment in future years, but it's far from a ceiling.