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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
John: I am 68 and I am drawing Social Security. I was in the Army for two years and 11 days. I saw somewhere that I could add $300 for every quarter I was on active duty. Would this increase the amount I collect?
Larry: This site will tell you if you quality for extra earnings credits. It depends when you were on active duty. Whether the extra credits, were you to qualify to receive them, will raise your benefit will depend on your entire earnings history. But this site suggests that if you are owed these credits, they are automatically provided to you.
Gregory: I’m 61, my wife is 55, and we will both have the same earnings record. I plan on collecting when I turn 62. My wife plans on filing for spousal benefits when she reaches full retirement age and then collect on her own when she reaches 70. Does my filing at 62 affect her ability to do this, or do I have to wait until my full retirement age?
Larry: In order for your wife to collect a spousal benefit you must either be collecting your retirement benefit or have filed for it, but suspended its collection (something you can do starting at your full retirement age). So your filing at 62 will not affect your wife’s ability to do what she intends. But, like your wife, you too may do much better waiting until 70 to start collecting your retirement benefit.
Joanne: I plan on retiring in February 2013 and not working any longer. Is it advisable to take my social security at age 62 or wait until at least age 65?
Larry: Your full retirement age is 66, not 65. And you can wait until 70 to take your retirement benefits, at which point they can be up to 76 percent higher, adjusted for inflation. So if you are single, consider waiting until age 70 to collecting the highest possible benefit. Try to use other resources to get by until then. If you know, for sure, and I mean really for sure, that you will die relatively young, my answer would be different. And if you are married or divorced or a widow/widower, there are additional strategies to pursue, with respect to the timing of taking spousal, child, divorced spouse, and survivor benefits, which can materially influence your total lifetime benefits from the system.
Jani: I worked in our family business from 1978 to 1990. There were two families — my husband and his brother and the wives — who ran the business. The men took care of the taxes and I found out about seven years ago that they did not pay any quarterly Social Security taxes for the wives, only the husbands. I can’t remember for sure but I believe my name was on the business (I can find out if necessary). We have been divorced for about 10 years. Should they have paid into my Social Security taxes? Do I have any recourse or do they have any responsibility to have paid them at the time? Is there a statute of limitations?
Larry: If they paid you for your work and they failed to pay the employer part of the Social Security tax and transmit your employee contribution, they engaged in tax fraud. If they paid you as consultants, you should have paid Social Security taxes on your Schedule C income. If you and your husband failed to report this income to you as Schedule C income, then you engaged in two types of tax fraud — not paying all the federal income taxes owed and not paying Social Security taxes owed. I don’t know if there is a statue of limitations or how Social Security will treat this issue. I can imagine that your husband prepared the tax returns and you just signed it without looking at the details. If this is what happened, i.e., if you weren’t a regular employee, but rather you were treated as a consultant, well, gee, this could get messy.
Pam: I have a one-time opportunity to switch from TIAA-CREF to the state pension plan. I am a professor at the University of Connecticut and have been there for 21 years. My TIAA-CREF account has enough to buy into about 15 years, and I will probably work another five to ten years. At present, it is a better return for retirement. Should I go with the state pension plan or hope the market will come back?
Larry: Complicated question. If I gave you a quick answer, I’d be doing you no favors. My company’s software, particularly ESPlannerPLUS (which isn’t free) can help. But it can’t determine whether or not the stock market will rally and provide a better return than the Connecticut state system. One big question is whether your job is covered by Social Security. If not, you can, by receiving a higher state pension, end up zapping your spousal and survivor Social Security benefit based on your spouse’s covered employment since the Government Pension Offset provision depends on the size of your non-covered pension.
Blythe: My husband and I both worked and paid top Social Security. I retired and took benefits at 62. My husband intends to continue working and pay maximum Social Security until he’s 70. If he dies before me, will I get his full Social Security?
Larry: Yes, unless you take your survivor benefit before you reach your full retirement age. When your husband reaches full retirement age, he should apply JUST for his spousal benefit from your earnings. It will cost him nothing. And here’s the really good news: If you didn’t know to do this, I just made you, perhaps, $60,000, which you can contribute to PBS if you so choose.
Rich: I’ve heard of something about Social Security that if I register for, and then immediately cancel, Social Security benefits, I can increase my average benefit substantially. I will be 65 in December this year. Should I do this?
Larry: When you reach full retirement age — which is now 66, remember, not 65 — you can file for your benefits and suspend their collection, at which point your spouse will become eligible to collect her/his spousal benefit, not you. You can then wait until 70 to start your own retirement benefit. Alternatively, when you reach full retirement age, you can apply just for your spousal benefit if you are divorced. You can also apply for just your spousal benefit if you are married and either a) you spouse is collecting his/her retirement benefit or b) your spouse has reached full retirement age and has filed for, but suspended the collection of his/her retirement benefit. Under these alternative scenarios, you can then wait until 70 to collect your largest possible retirement benefit.
LDW: I have somewhat complex, ‘un-customary’ questions about Social Security benefits. That “SSA is notorious for inaccuracies” is my experience also. Who do I go to, or how do I get, reliable information? Questions put to the wrong person could lead to disaster.
Larry: I agree. The local Social Security offices can give either wrong or incomplete advice. The people there are very well meaning, but the system’s rules are unbelievably complex. Nor can one read Social Security’s Handbook’s 2728 rules or the tens of thousands of provisions in its Program Operating Manual System that “explain” these 2728 rules without having a degree in a foreign language — SocialSecuritese. I think all members of Congress should be compelled to read these rules each night before they say their prayers so they can ask the Lord’s forgiveness for inflicting the public with this system.
Now, as for you, I suggest you consider using my company’s software, which costs $40, but can potentially save you a lot more. We are incredibly careful when it comes to the system’s rules and have gotten them straight by asking top actuaries at Social Security precisely what each rule means.
This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions