Social Security's divorced widow abuse -- an isolated case?
Social Security rules are complicated and change often. For the most recent "Ask Larry" columns, check out maximizemysocialsecurity.com/ask-larry.
Editor's Note: Boston University economist Larry Kotlikoff has spent every week, for over three years, answering questions about what is likely your largest financial asset — your Social Security benefits. His Social Security columns have prompted so many of you to write in that we feature "Ask Larry" every Monday. Find a complete list of his columns here. And keep sending us your Social Security questions.
Kotlikoff's state-of-the-art retirement software is available here, for free, in its "basic" version. His book, "Get What's Yours — the Secrets to Maxing Out Your Social Security Benefits," (co-authored with Paul Solman and Making Sen$e Medicare columnist Phil Moeller) was published before the changes from the Bipartisan Budget Act of 2015 went into effect. The three authors are now doing an overhaul of the book. The new version of "Get What's Yours" should be out this spring.
Kotlikoff has been keeping readers updated on how the budget act changes a number of Social Security rules with "This is not how you fix Social Security," "Congress is pulling the rug out from people's retirement decisions" and "12 secrets to maximizing your Social Security benefits under the new rules," as well as his answers to viewer questions. We'll continue publishing updates on what this new law means for you. Stay tuned.
A lovely lady, who I'll call Gail, contacted me recently in despair. Gail's ex-husband had died roughly six months earlier, and having just reached 66 (full retirement age), Gail wanted to take her divorced widow's benefit. Gail, who started collecting her own retirement benefit early, is extremely well versed in Social Security provisions. She knew that her ex-husband had started his retirement benefit after full retirement age and that her total check would equal his $2,000 check broken down into her own $500 reduced retirement benefit plus an unreduced excess widow's benefit of $1,500. (I'm using round numbers to keep things clear.) The $1,500 would not be reduced, because she was taking it at full retirement age and not a day earlier.
Imagine Gail's consternation when she visited the Social Security office in Charlotte, North Carolina and was told by a staffer that all she would get was $1,500, because she hadn't reached full retirement age when her ex died. This was totally wrong, but the staffer insisted she was correct even when another staffer told the first staffer she had it wrong.
Gail doesn't have other income, so $500 a month is a very big deal. The first staffer also told her she needed to fill out form SSA-4111, called a Certificate of Election, which says right at the top that she is filing for a reduced widow's benefits. But Gail wasn't filing for a reduced widow's benefit or even a reduced divorced widow's benefits. She was filing for her unreduced excess widow's benefit.
Gail told the Social Security staffer that this couldn't be correct, because she had waited until full retirement age to collect her full excess widow's benefit. She was told again that her ex had died before she reached full retirement age (which makes no difference) and verbally chastised. (Gail taped the conversation and sent me the recording.) Gail was told to sign the certificate of election and that if she didn't sign, she'd get nothing.
Gail refused and left the office in tears. She then called Social Security's 800 number and after an hour on hold was again told she'd only collect the $1,500.
At this point, Gail contacted me. After consulting with Jerry Lutz, the former Social Security Administration technical expert who double checks my weekly column, I told her to go to her local office in Concord, North Carolina office and ask them to file form SS-10, which is the standard application for widow's benefits. She went there and met another staffer who insisted she file form SSA-25, which is another Certificate of Election, but for reduced spousal and divorced spousal benefits. But Gail is no longer a divorced spouse, let alone a spouse. She's a divorced widow! Gail objected, and the staffer checked with another staffer who also told her to fill out SSA-25 and then take it to the Charlotte office.
Gail left the Concord office and got back in touch with me. I told her I'd call the office on her behalf and speak to the second staffer at the Concord office. I left a polite message and was called the next day by the supervisor. The supervisor told me he was a Supplemental Security Income expert and didn't know much about widow's benefits. I told him that Gail had been told to file SSA-25, but she needed to file SSA-10. I asked him if could he please look at SSA-10, confirm this was the right form for Gail to use to collect a unreduced divorced widow's benefits and assist Gail in filing form SSA-10. He refused to pull up SSA-10 and said he needed to look at SSA-25. Over the next two hours, I was mostly left on hold. Each time the supervisor returned to the phone, I asked him to please just look at SSA-10. He refused, and at the end of the two hours said he was sorry, but he couldn't discuss this issue any longer and hung up.
Not one to give up, I contacted some Social Security Administration top brass and relayed the story. I call them the SSA Angels. They called the regional manager who contacted Gail and instantly helped her file for her unreduced excess spousal benefit, which she will receive in addition to her own reduced retirement benefit.
No one should be verbally abused by public officials. Nor should they be misled by one public official after another. Those following my column know that there are people all over the country being repeatedly told the wrong information by undertrained, overworked, overwhelmed, and I have to say, incredibly self-assured Social Security staffers.
The only way this will end is if the Social Security Commissioner starts fixing this terrible problem. Gail knew enough to ultimately get what she was owed, but there are 10,000 people filing daily for Social Security. If they, like Gail and all the others I've been writing about, are told the wrong thing, it can cost them tens of thousands of dollars, which they will never be able to recover. This is why it's so important for anyone dealing with Social Security to know exactly what they are due and to tell, not ask Social Security to give them what's theirs.
Carrie: Could you address the rules regarding health savings account contributions after applying for Social Security and suspending? I turn 66 on April 5. I continue to work and make maximum contributions to an HSA. In order to meet the new deadline for eligibility for my spouse to draw spousal benefits when he turns 66 in December, I applied for Social Security and requested benefits to be suspended. The online application asks if you want to apply for Medicare, and I entered "No." My approval letter says I am automatically enrolled in Medicare Part A. Will I be penalized for all of my HSA contributions for the six months prior to turning 66? What is the best strategy? When I called Social Security here in Chicago, I was told I could continue to contribute to the HSA, but I was not at all sure that the employee understood my question.
Larry Kotlikoff: My understanding is that if you file and suspend, as you have, you are automatically enrolled in Medicare Part A even if you indicate on the online form that you don't want to enroll in Medicare Part A. Once you are enrolled in Medicare Part A, you can still participate in an HSA, but contributions to an HSA from the date of Medicare enrollment on will not be excludable from your taxable income.
I've asked Phil Moeller, an expert on Medicare and co-author of "Get What's Yours," to weigh in. His companion guide, "Get What's Yours for Medicare: Maximize Your Coverage; Minimize Your Costs," will be published in September.
Phil Moeller: It is true that if you file and suspend, you are automatically enrolled in Medicare Part A. Any form of Social Security filing, even filing and suspending, triggers enrollment in Part A. The only way to disenroll is to withdraw from Social Security, which is nearly always a bad idea.
As Larry writes, "Once you are enrolled in Medicare Part A, you can still participate in an HSA, but contributions to an HSA from the date of Medicare enrollment on will not be excludable from your taxable income." But the definition of "participate" is fraught. Because tax-deductible contributions into an HSA are no longer possible, you should cease all new contributions into the plan or face IRS hassles down the road. HSA accounts can't accept taxable contributions. You should employ post-tax dollars elsewhere.
As of the date further contributions are disallowed, you are free to continue participating and to spend the funds already in the HSA at any time. If you spend them on covered medical items, there will be no tax; if you spend them on other items, your HSA withdrawals would be subject to taxation. Read my most recent explainer on HSAs and Medicare for more information.
Jennifer: I am a full-time caregiver to my disabled son. I'll be 64 in April. I currently have alimony, and my son has Supplemental Security Income. We live on less than $2,000 a month with food stamps. Before this, I worked part time. I was married for 18 years, and my ex will be 65 this April. When he retires, he'll try to cut my alimony.
My ex has not filed for his Social Security retirement benefit nor have I. But my ex (a tenured college professor for last 23 years) will be 65 in April, and I'll be 64. Right now, Social Security says that I can get around $611 per month on my small lifetime income. I had hoped to claim on his work record instead.
What is best for my son and me?
Larry Kotlikoff: You can take a reduced divorced spousal benefit right now. You'll be forced to take your own retirement benefit. You'll get you own reduced retirement benefit plus your reduced excess spousal benefit.
Once your ex files for his retirement benefit, you can collect a disabled child benefit for your son and an excess child-in-care spousal benefit for you, which will not be reduced.
I've asked Jerry Lutz, a former Social Security Administration technical expert, to weigh in.
Jerry Lutz: That sounds about right, Larry. In order for her to qualify for unreduced child-in-care benefits when her ex-husband files, she must be performing personal services for him (that is, nursing care, assistance with eating and/or dressing). (This is assuming the child is over age 16 and is not mentally impaired.)
If she files before her ex files, her retirement benefits and excess divorced spousal benefits would be reduced. However, for as long as she continues to have a child in care, the entire reduction would effectively go away as soon as her ex files and her son becomes entitled on his account. Her son should also be able to qualify on her account when she files, but the benefits he gets from her record will be offset against his Supplemental Security Income. He'd probably end up with the same total benefit or maybe $20 more. Of course, the Supplemental Security Income will likely stop altogether when he becomes eligible on his father's account. All of this said, I have no idea if or how any of this may affect the alimony she's receiving.