Social Security rules are complicated and change often. For the most recent "Ask Larry" columns, check out maximizemysocialsecurity.com/ask-larry.
Boston University economist Larry Kotlikoff has spent every week, for over two years, answering questions about what is likely your largest financial asset — your Social Security benefits. His 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 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 new 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 in February by Simon & Schuster.
Watch Larry explain how Paul and his wife could collect an extra $50,000 in Social Security benefits:
The new study, "The Growing Gap in Life Expectancy by Income" by the National Academy of Sciences shows a dramatic increase in the gap between the life expectancy of the rich and the poor. At age 50, the life expectancy for males born in 1930 with high lifetime earnings (in the top 20 percent) was five years greater than their counterparts with low lifetime earnings (in the bottom 20 percent). But for males born in 1960 (who are now age 55), that gap is 13 years. For females, the gap grew from four years for those born in 1930 to 14 years for those born in 1960. What's even more astounding is that life expectancy at age 50 for the poorest 20 percent has dropped by a half year for males and four years for females.
The National Academy of Sciences provides no precise explanation for the widening rich-poor lifespan gap, but references smoking and obesity as two important factors. Whatever the reason, the fact that the rich are living longer and the poor shorter makes a big difference to the total benefits the two groups can expect to receive from entitlement benefits — Social Security, Medicare, Medicaid and Supplemental Security. The reason is simple: To collect any of these benefits you need to be alive, and since the benefits continue until you die, on average, living longer means collecting more on average.
Exactly how big is this difference? Well, using current mortality rates, rich males are now expected to receive roughly $130,000 more in lifetime entitlement benefits, and rich females are now expected to receive roughly $30,000 more. Under the old mortality rates, rich males would fare pretty much the same as poor males, while rich females would receive about $130,000 less than poor females. Consequently, the overall entitlement system has gone from being pro-poor to pro-rich when measured in terms of absolute benefits received.
These findings should give pause to anyone suggesting that we raise the early retirement ages for Social Security and Medicare. They also support raising the ceiling on Social Security payroll tax contributions.
MC: After reading your recent PBS NewsHour article, I have some questions regarding Social Security for my husband and myself. Neither my husband nor I are drawing on our Social Security. I will turn 65 in November 2016 and am taking Medicare. My husband will turn 65 in December 2016 and is taking Medicare. We were not planning on taking Social Security until at least age 66. Since there will be no cost of living adjustment for Social Security in 2016, should either one of us begin drawing on our Social Security sooner, and if so, when? It appears we are among the "pocket" of folks not being "held harmless" and will be paying quite a bit because of our situation. We are not sure what we should do. If you could respond to our concerns, we would be very appreciative.
Larry Kotlikoff: From what I understand, you need to be taking Social Security for at least two months in order to be held harmless. If inflation is again very low between the third quarter of next year and the third quarter of this year, you could both take your retirement benefits early so that you collect in both November and December of 2016. But this will come at a cost of permanently reduced retirement benefits. Most likely, you will also eliminate the ability of either you or your husband to collect a full spousal benefit (starting at age 66) and wait until 70 to collect the highest possible retirement benefit (which also becomes the widow(er)'s benefit for the survivor when that person dies). As I wrote last week, being held harmless is only a temporary benefit if inflation takes off once again, which seems likely given how much money the Federal Reserve has been printing.
William – Brooklyn, NY: We're reading your book, but our situation is very complicated. I'm 65 and will reach full retirement age (FRA) next year when I plan to start receiving benefits. My wife is 74 but has not been receiving benefits at all, because she's not a U.S. citizen and doesn't have an alien number. She's been working in this country for 31 years and paying taxes. We've been married for nine years. Can I get spousal benefits for her until I start receiving my own benefits at 66 or maybe 70?
Larry Kotlikoff: I presume your wife has a green card or some legal status to live and work in the U.S. If she has been paying Social Security taxes, she must have a Social Security number and be eligible to collect benefits based on her covered earnings history. So I'm very puzzled by your statement that she isn't collecting. Has she ever filed to collect her retirement benefit? Whether she has a green card or not, she can collect spousal benefits based on your work record. You will need to file for your own retirement benefit before she can collect on your work record. You could do that now, but doing so will mean you're receiving a reduced retirement benefit. On the other hand, at 66 (your full retirement age), you could suspend your retirement benefit and restart it at a 32 percent higher level at 70. We discuss this strategy in the book and call it "Start, Stop, Start." However, if your wife can collect on her own work record, she will be able to collect the larger of her own retirement benefit and her spousal benefit. This would likely be her retirement benefit, in which case she'd get no spousal benefit and your taking your retirement benefit early would be in vain. I'd go to the local Social Security office and determine whether she can collect on her own or on your work record. This presumes she is here legally.
John – Grosse Pointe, Mich.: I bought and read your book, but I have comprehension problems. I am 80 years old, somewhat disabled and am currently receiving about $1,600 in Social Security (I started it at 62) and $1,700 via Marine Corps elderly home assistance. My ex is 75 and has been receiving Social Security for close to 10 years. We were married for just over 10 years. She was a school teacher. Is there a chance in hell either one of us or both of us might be entitled to some additional benefits?
Larry Kotlikoff: First, my sincere thanks on behalf of myself and my family for your service to our country.
For you to receive a divorced spousal benefit, your ex-wife's unreduced benefit would have to be more than twice as much as yours. That's not possible in your case, since your unreduced benefit is well over half of the maximum possible benefit. On the other hand, she may be eligible on your account if her benefit amount is relatively low. Also, if your ex is receiving a larger Social Security retirement benefit than you, you can collect her benefit as a divorcee widower benefit were she to pass before you. The same holds for her if your retirement benefit is larger.
Carla – Daleville, Ala.: I was married for 20 years. My spouse passed away in 2000 at age 60. Prior to his passing, he received Social Security Disability benefits for about two years. At that time I was 47 years old. I remarried at age 60, and we were married two months shy of two years. He was 71. He started receiving his Social Security at age 62. When I went to the Social Security office to report his death, I was told that I was eligible for a benefit, but because I still worked, my earnings exceeded the maximum amount you can earn. Now that I am 62 and considering retiring, which spouse would I be able to draw a benefit from? I would like to wait and file for my own earnings at age 70. Is this allowed?
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Larry Kotlikoff: You can collect on either of your deceased former spouses, with the choice depending on which deceased former spouse will generate the highest widow's benefit. Taking a widow's benefit first coupled with waiting until 70 to take your own retirement benefit at its highest value may be your best move. In this case, you'll want to file for a widow's benefit immediately unless you are sure to lose all your benefits via the earnings test. Don't worry about losing some of your benefits to the earnings test. Your widow's benefit will be bumped up at full retirement age in light of the loss of these benefits. Of course, once you start your own retirement benefit at 70, you will no longer be collecting your widow's benefit, because Social Security doesn't let you collect two benefits at once, just the larger of the two. Hence, the advantage of the bump up (called the adjustment of the reduction factor) is time limited. Now if your retirement benefit at age 70 will not be larger than your highest widow's benefit, the above strategy is not the way to go. Instead, you should take your retirement benefit immediately and then take your widow's benefit at or before full retirement age. Very careful commercial software that deals with the RIB-LIM formula (which is used to calculate the widow's benefit for deceased spouses who took their retirement benefit early) can help you understand what's optimal.
Debbie – St. Louis, Mo.: Can you please explain the "combined family maximum," when it should be used and how to ensure Social Security Administration does that calculation (if it's not automatic)? I read through your backlog and book, but I can't seem to find this topic.
Larry Kotlikoff: I've asked our Social Security technical expert, Jerry Lutz, to weigh in.
Jerry Lutz: A combined family maximum can occur when a child or children are entitled to benefits on more than one account, typically on both of their parents. The family maximums on both accounts may be combined in that case in order to potentially pay a larger benefit to eligible family members. Social Security should identify and properly calculate the benefits due when this occurs. If you have reason to question the amount of your benefit, contact your local office and ask to speak to a claims representative or technical expert. They should be able to explain how the benefit was calculated.
Anonymous – Paterson, N.J.: I was talking to my friend, and she said that I can collect my late husband's Social Security. He started collecting his at age 67, and he died at age 70. I'm 56 years old and working, making about $51,000 a year. Would I be able to collect his Social Security at age 60 and then collect mine at 66 and a 1/2 if mine is more than his? Thank you in advance for your help.
Larry Kotlikoff: Yes you will be able to do this. However, as I told Carla above, you need to make sure this strategy is optimal compared to a) waiting until 70 to collect your own retirement benefit or b) collecting your own retirement benefit starting at 62 and your widow's benefit at full retirement age.
Mark – Albany, N.Y.: My situation is very typical, yet I can't pin down an answer to my simple question. I am 60, and my wife is 59. I am entitled to a Social Security payment that is about five times the size of hers (she was a housewife for many years). Is the following strategy permissible and wise? When she turns 62, she files for her own fairly low Social Security benefit and receives it each year. Three years later, when I turn 66 and two months, I file for my Social Security benefit and start receiving it. At that same time, she switches to her spousal benefit, which will be 50 percent of my benefit.
Larry Kotlikoff: Your wife can only file for her spousal benefit when you file for your own retirement benefit. (You can, by the way, file and suspend your retirement benefit at your full retirement age and then restart it at 70.) What your wife will receive once she files for a spousal benefit is a) her reduced (to age 62) retirement benefit plus b) her reduced (to age 65) excess spousal benefit. Her excess spousal benefit (before reduction for taking it prior to full retirement age) equals half of your full retirement benefit less 100 percent of her full retirement benefit. This amount will be set to zero if the calculation produces a negative number.
Correction: In the first section, it was misstated that "life expectancy at age 50 has dropped across the two groups by a half year for males and four years for females." It has not dropped across the two groups, but for the poorest 20 percent.