Ask Larry: ‘Do I Need to Sell My Home So I Can Retire?’

BY Laurence Kotlikoff  September 24, 2012 at 11:27 AM EDT


Social Security Cards via Creative Commons

Larry Kotlikoff’s Social Security “secrets” and his answers to your questions (here, here and here) 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.

To investigate further how and when best to collect, you can try Larry’s software: Maximize My Social Security. Note, however, it is not free.

Phyllis: I am five years older than my estranged husband. Can I collect his Social Security when I turn 62?

Larry Kotlikoff: I’m not clear if you are divorced or separated. It matters. If you are divorced, you need to wait until your ex is 62 to start collecting spousal benefits on his record. And you can do this regardless of whether he starts collecting his retirement benefit at 62. If you are married, he’ll need to take his retirement benefit or file and suspend it (which he can do starting at his full retirement age) before you can get a spousal benefit. So if you are separated, one option is to get divorced, in which case you don’t have to wait beyond when he reaches age 62 to collect as a spouse.

Michael Adams: I’m 59. Can I retire at 62?

Larry Kotlikoff: If you have 40 quarters of coverage, you can collect reduced retirement benefits starting at 62 and, potentially, reduced spousal benefits if you have been married for 10 years and your wife is collecting her retirement benefit or has filed but suspended it at the time you apply. Collecting early may, however, be a really, really, really bad idea financially. If you wait until “full retirement age,” your benefit will be 25 percent higher. And if you wait until 70, your retirement benefit will be almost SEVENTY-FIVE percent higher. Social Security is meant to be old age insurance. We are living longer. If you can afford to, it makes sense to insure against outliving your savings. The way to do it is defer taking Social Security until age 70.

Rita Mirick: If my husband and I both collect disability and he dies, will I be able to collect my own disability and draw off his Social Security benefits?

Larry Kotlikoff: You’ll be able to collect a survivor benefit starting at age 60, but it will be significantly less than if you wait until your full retirement age.

Mark: How much money can I make if I decide to go back to work before taxes are taken out?

Larry Kotlikoff: If you have reached full retirement age, you can earn as much as you like without losing benefits. If you are going to attain full retirement age after 2012, $1 out of each $2 you earn above $14,640 will be deducted from your benefit. If you have reached the year in which you attain full retirement age, you lose $1 out of $3 for each dollar earned above $38,880 during the months before you attain full retirement age. You shouldn’t worry about the earnings test, though, because once you reach full retirement, Social Security permanently raises your retirement benefits in light of the fact that you lost some months of benefits due to the earnings test.

Carol: I’m 64 ½ and am a healthy, divorced, single empty-nester with two bankruptcies under my belt (one because of the divorce and one from losing a small business in the 2008 crash). I have a good job making $55,000 a year but am $8,000 underwater on my house and pay $530 a month on a $61,000 Parent Plus loan. I also have a new 401(k), which I maxed to get an employer match, with a balance of $3,000. I want to retire but I will probably work until I’m 70 to pay off the student loan. I’m considering selling my house and renting an apartment so I can pay double on the student loan. Do you have any ideas or suggestions for me? I really wish I had purchased an RV instead… and not gotten divorced.

Larry Kotlikoff: I think your best strategy is to wait until 70 to collect your retirement benefit. But when you reach full retirement age, which is 66 for you, you should file just for your spousal benefit. There is no earnings test after you reach full retirement age. Make sure to pay your Medicare Part B premiums out of pocket because, as I’ve explained here in my “Gotchas” post, if you don’t do this you run the risk of reduced benefits.

Ron Beals: Is the “traditional” wisdom about Social Security still right, that a lower income spouse should start taking benefits as soon as possible, and the higher income spouse should delay as long as possible? My wife, who stopped working a year ago, will turn 62 in March and is eligible for $750 a month. I’m 65, still working, not sure when I will stop (but certainly not until I’m at least 67) and I’m eligible for maximum Social Security. We can cover expenses without it, but it would be nice for the “extras” (trips, replacing 30 year-old furniture, maybe replacing our 12 year-old car…)

Larry Kotlikoff: Traditional wisdom is not necessarily right. It may be better to have your wife wait until full retirement age and then collect just her spousal benefit (you’ll need to file and suspend for your retirement benefit to let her take her spousal benefit) and then at 70 she applies for her retirement benefit as well. Could be much more lucrative than the traditional wisdom to the tune of tens of thousands of dollars. Our software can help you with this, though Paul always insists that when I write this, I add that, unlike ESPlanner Basic, Maximize My Social Security isn’t free.

Ellen: I will retire in one year, when I will be 59. My husband is employed part time and began taking Social Security at 66. He will retire this December on his 67th birthday. We will be debt free at that time and hope to live on $75,000 a year from investments, $17,000 per year from rental income and the remainder from Social Security (his benefit is currently $27,000 per year). The majority of the invested portion of assets are in tax deferred accounts. I will be eligible for $15,000 per year in Social Security at 62. What strategy would you recommend in regards to timing and combining benefits to optimize our ability to maintain this lifestyle with my projected longevity to 90 and my husband’s to 93?

Larry Kotlikoff: You need to think about your maximum age of life, not your expected age. That may well be 100. You actually have a pretty complicated case. I’d have to run all the numbers to be sure, but I suspect the optimal strategy is for your husband to repay what he has received and wait until 70 to collect his retirement benefit. See my answer to Michael Adams, above, as to why. He can repay because he is within a year of having begun to collect. When you reach 62, you would apply for your retirement benefit. Once you do that, he would apply just for his spousal benefit. When you reach full retirement age, you would suspend your retirement benefit and apply for your spousal benefit and restart your retirement benefit at 70.

This entry is cross-posted on the Making Sen$e page.