The High Cost to Your Family of Filing for Social Security at 62, Even If You Need the Money


Even if you’re strapped for cash now, it’s worth making some lifestyle changes, like picking up another job or downsizing, to delay collecting Social Security retirement and spousal benefits and to preserve their higher value for later in life when you and your family will need them to be as high as they can be. Photo courtesy of Flickr user Lee J. Haywood. 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

Linda P. — Stone Mountain, Ga.: I will be 62 in January 2014 and plan to file for Social Security. I know I’m looking at a 25 percent cut in benefits, but I have no income now and need whatever I will get. When my husband files for his benefits, regardless of age, will I be able to suspend my payments and take spousal benefits under his account?

Larry Kotlikoff: The answer is yes, but once you file for your own retirement benefit, even if you file for it and immediately suspend it or suspend it after receiving retirement benefits for a while, your spousal benefit will be calculated as an excess spousal benefit, not a full spousal benefit. The full spousal benefit is half of your husband’s full retirement benefit. The excess spousal benefit equals the full spousal benefit minus your full retirement benefit. If this difference is negative, the excess spousal benefit is zero.

If you take your retirement benefit before your husband takes his, you won’t be forced to apply (deemed to be applying) for a spousal benefit. Once your husband does take his retirement benefit, you’ll be able to collect an excess spousal benefit, but again, it may be negative. You can only get a full spousal benefit by making it to full retirement age. If you try to apply just for a spousal benefit before full retirement age, you’ll be deemed to also be applying (filing) for your retirement benefit and, therefore, you’ll be stuck with the dreaded excess spousal benefit forever.

Once you reach full retirement age, you can apply just for your full spousal benefit and wait until 70 to collect your own retirement benefit, when it will be at its largest value. But as soon as you hit 70 and file for your own retirement benefit, you’re back in the dreaded excess spousal benefit world and your new spousal benefit may be zero. In this case, you’ll just get your own retirement benefit. And by the way, once you are over full retirement age, your excess spousal benefit is computed differently. It’s calculated as your full spousal benefit minus your own full retirement benefit augmented by the delayed retirement credit.

If your excess spousal benefit isn’t zero, you’ll get a check (before deductions for Medicare Part B premiums) equal to the sum of your own retirement benefit, including the delayed retirement credit plus your excess spousal benefit. But, given how the excess spousal benefit is calculated, this all amounts simply to your full retirement benefit. So, if you did wait until full retirement age to take your full spousal benefit, you may end up getting nothing more starting at age 70 (apart from Social Security’s annual cost-of-living adjustment).

Having said all this, I realize that you need money right now and that waiting until full retirement age to start collecting may not be in the cards. But if there is any way you can swing this — by working or using a retirement account or having your husband earn more or downsizing — please consider it because you are likely to live for another 40 years and that’s a long time to be collecting much lower benefits than you’d otherwise collect.

Abraham — Spring Valley, N.Y.: Can my wife and I file and suspend and collect spousal benefits? We are both at full retirement age (FRA).

Larry Kotlikoff: I wrote about this a couple weeks back, but as soon as someone files, whether or not they suspend, their spousal benefit is calculated as their excess spousal benefit rather than their full spousal benefit. The full spousal benefit is half of your spouse’s full retirement benefit less 100 percent of your own full retirement benefit. This amount could be either very small or negative, in which case the amount is set to zero. So if you both file and suspend, you can both end up with a very small or zero excess spousal benefit. So yes, you can both file and suspend, but that’s a really bad move.

Just one of you should file and suspend and then the other can apply just for a full spousal benefit and then wait until 70 to take his or her retirement benefit, inclusive of the delayed retirement credit. Which of you should do this depends on your current ages, your maximum ages of life and the rate at which you discount future Social Security benefits. You need commercially available software to calculate this for you.

Jan — Vista, Calif.: I had to take an early retirement at 62, but I still work part time and Social Security is deducted from my salary. I am approaching 66 (my full retirement age). Do I get more now or at 70? Or not all?

Larry Kotlikoff: First, the Social Security benefits you “lost” through Social Security’s earnings test will be restored to you starting at full retirement in the form of a larger monthly benefit. And since this re-computation of the adjustment factor is very generous, the more benefits you “lost” to the earnings test, the better.

Once you hit full retirement age, you can suspend your retirement benefit (and make sure to pay your Medicare Part B premiums out of pocket) and your benefits will start up at age 70 at a 32 percent larger value after inflation. So yes, if you suspend at 66, you can collect more at 70, but at a cost of not getting benefits for four years. On balance, if you have a pretty high maximum age of life and can support yourself through other means between 66 and 70, this is the smart move.

Thomas A. — New York, N.Y.: I am planning to retire next year at age 63. My wife will be 62 then. She worked only for two or three years so she doesn’t have enough credits of her own. But she will be eligible for spousal benefits. After retirement, I wish to live outside the U.S. I am a U.S. citizen, but my wife is a legal permanent resident. Could you please explain the implications of getting Social Security benefits outside the U.S.?

Larry Kotlikoff: There is no way to answer your question without a lot more information. Non-U.S. citizens may or may not be able to receive benefits while outside the U.S., depending on their country of citizenship, where they are residing and how long they will be outside the U.S. There is also an alien withholding tax which may or may not apply. The best place to look for general information is the Social Security Administration publication, “Your Payments While You Are Outside the US”.

Laura — Ojai, Calif.: I was married for 17 plus years. My former husband died. I am currently 53. Can I retire at 62, collect his Social Security and then switch to my Social Security at the age of 70, if I live that long?

Larry Kotlikoff: I’m terribly sorry for your loss, as is Paul. You can start collecting a reduced survivor benefit at 60 and your own retirement benefit any time between 66 and 70. Your survivor benefit will be highest if you wait until full retirement age to start it. Your own retirement benefit will be highest if you wait until 70 to collect it. The rub is that taking both benefits at once will lead you to get only the larger of the two.

The way to get the most lifetime benefits is to take one of the two benefits first and let the other one grow. If you take your survivor benefit at 60, for example, you can switch to your retirement benefit at 70 if it is higher than your reduced survivor benefit. Or you can take your reduced retirement benefit starting at 62 and start your unreduced survivor benefit at full retirement age.

You can also do a variant on one of these strategies. Use a trustworthy Social Security maximization computer software program to determine which benefit to take first and then when to start the other benefit.

Mary S. — Calistoga, Calif: I have been legally separated for four years, and I have not seen or spoken to the man the entire time. He lives with the woman he left me for. The separation agreement ends in December 2014. If my husband continues to work and retires at 65, when I will be 62, can I receive his Social Security amount without waiting two years?

Larry Kotlikoff: Unfortunately, you need to have been married for 10 years before you can collect benefits as a divorced spouse. If this were the case, for you to collect spousal benefits on his record, he’d have to either be collecting his own retirement benefit or he’d have to be older than 62 and you’d have to have been divorced for two or more years. But you aren’t divorced, so you need to wait until he begins collecting his own retirement benefit before you can collect a spousal benefit on his work record.

Jane P. — San Carlos, Calif: My husband and I are both beyond retirement age. I decided to collect Social Security first since his Social Security payments will be bigger than mine. He collected spousal benefits so that his payments could continue growing. I cancelled mine after reading some advice that I should wait even though his Social Security income will be bigger. I tried to cancel his spousal benefits, but was told by Social Security that I couldn’t stop his spousal benefits once they were started even though I was able to put mine on hold. Is this correct?

Larry Kotlikoff: My understanding is that you can do a Social Security redo if you repay all benefits, including spousal benefits received on your work record, within one year of collecting your retirement benefit. If you are talking about suspending your own retirement benefit after full retirement and starting it up again before age 70 (there is no advantage to waiting beyond age 70) to benefit from the delayed retirement credit, then yes, that works for you. But you can’t suspend your husband’s spousal benefit that he collects on your earnings record. But you wouldn’t want to do so even if you could because the delayed retirement credit doesn’t apply to spousal benefits.

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions