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 original 34 “secrets” 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 before the changes from the Bipartisan Budget Act of 2015 went into effect.
Social Security expert Larry Kotlikoff has been keeping readers updated on how the budget act changes a number of Social Security rules. We’ll continue publishing updates on what this new law means for your Social Security benefits. Stay tuned.
Jeanne: I am afraid you get thousands of emails, but I have received different answers from every person, agency and government office I spoke with regarding my retirement options. I am hoping you can shed some light on my situation.
I was married for more than 10 years to my ex-husband. He is 69 and receives retirement benefits (approximately $2,000 per month). I have been on disability ($761 per month) since 2010 and will turn 62 in January 2016.
My physical disabilities persist, but I am hoping to work soon. It appears that I may be jeopardizing future Social Security benefits by going back to work. Here are my questions:
- Can I collect on my former spouse, or should I wait until full retirement age?
- Do I have to keep Medicare if I get group coverage through work?
- Should I only work part time?
- How would all this be affected if I remarry?
I raised six children and put them through college, so I no longer have any savings or property. I had prolonged health issues (not the original disability) and although those issues have been completely resolved, I’ve fallen into deep poverty and have had to use many government programs (Section 8, food stamps, Medicaid pays for Medicare and Vocational Rehab). I hate this existence and was hoping to earn enough to regain independence and improve my situation. Will I just be making things worse when I must retire?
Any advice would be sincerely appreciated.
Larry Kotlikoff: If your ex dies, your optimal strategy will change, but for now, my guess is that you should try to earn as much money as possible right through age 70 and start your benefits either at full retirement age or at 70. You missed the ability to collect a full spousal benefit at full retirement age and wait until 70 to collect your possibly higher benefit by just one month.
If you earn enough money, you will lose all your disability benefits via the earnings test, but it will likely be worth it in terms of your lifetime income. If you go off of disability, you can simply wait until 70 to take your retirement benefit if that’s optimal. It may not be!
Yours is a pretty complex case. I’ve asked former Social Security technical expert Jerry Lutz for his input.
Jerry Lutz: I assume by disability benefits Jeanne is referring to Social Security disability benefits and that the benefit amounts quoted are before any deductions for Medicare premiums.
That said, assuming that she has not yet worked since starting disability benefits, her disability benefits will continue to be paid for at least the first 12 months in which she works, regardless of how much she earns. That includes a nine-month trial work period followed by a three-month grace period.
If she continues to work and earn more than $1,130 per month after the first 12 months, her disability benefits will be suspended, but technical entitlement to disability will continue for at least another 33 months. This is referred to as an extended period of eligibility. During that time, her disability benefits will be reinstated if her earnings drop below $1,130 in any month. In other words, benefits would be suspended for months in which she earns more than $1,130 and paid for months in which she earns less than $1,130.
By the end of the extended period of eligibility, she will likely be age 66 or very close to it, at which point she will convert to regular Social Security retirement benefits at the same rate as her disability benefits. From her description of her financial situation, suspending her benefits at that point in order to receive delayed retirement credits would seem to be out of the picture.
The immediate question is when to apply for divorced spousal benefits. We know that her ex receives about $2,000 per month, but we don’t know when he started taking his benefits. If he started at 66, $2,000 is his primary insurance amount, but if he started at 62, his primary insurance amount would could be as high as $2,670. So Jeanne’s unreduced excess divorced spousal benefit could be as much as $571 or as little as $239. She should be able to find out the actual amount by contacting Social Security. Whatever the unreduced amount is, it would be permanently reduced by about 30 percent if she starts drawing her benefits at age 62. Her spousal benefits would also be subject to the earnings test until she turns 66 if she earns more than $15,720 per year. She’d have to wait until age 66 to get the full excess amount. Obviously, whatever the excess amount is, it would be paid in addition to her $761 disability benefit.
Medicare eligibility continues for at least seven years after a person on disability returns to work, assuming that they are still considered medically disabled by the Social Security’s standards. Jeanne will be over age 65 long before that, so her Medicare eligibility will continue uninterrupted. Part A (inpatient hospital care) is free and can’t be dropped. She does have the option of dropping Part B coverage, and as long as she’s covered by a qualified employer group health plan, she will be able to re-enroll in Part B later with no waiting period or penalties.
If she only works part time at less than $1,130 per month, there will be no interruption in her disability payments or divorced spousal benefits if she decides to start them before age 66, and her disability benefits will convert to her retirement benefits at age 66.
If she remarries, she loses her divorced spousal benefits. She may, however, qualify for spousal benefits on her new husband’s account depending on many factors. Furthermore, since she is over age 60, remarriage will not disqualify her from drawing surviving divorced wife’s benefits on her ex’s record when he dies. If Jeanne’s ex dies before she starts receiving divorced spousal benefits, she should immediately apply for survivor benefits on his account.
Jim — Sherwood, Ark.: My wife and I draw Social Security and are 69 and older. What I would like to know is: How will the changes in the new budget law affect us?
Larry Kotlikoff: You aren’t really affected by the new law. Because you are both collecting your retirement benefit already, one of you may be able to collect an excess spousal benefit on the other’s work record. So double check if Social Security knows that you are married. To collect an excess spousal benefit, your own full retirement benefit, inclusive of any accumulated delayed retirement credits, has to be less than half of your spouse’s. If you’ve each had a decent work record, your excess spousal benefits will almost surely be zero or very small.
What else can you do? You could suspend your benefits right now and restart them at a higher level starting at age 70. How much that raises your annual benefits from 70 on depends on your precise birthdates. If you just turned 69, it could be close to 8 percent each.
Patrick — Forestville, Calif.: I turned 66 in March of this year and my wife will turn 62 in May of 2016. Her own Social Security yearly benefit, even at 62, would be more than 50 percent of mine. I am retiring at the end of 2015. My wife plans to continue working. Using your terrific Maximize My Social Security program, I’ve run many scenarios of who collects, when to collect, who suspends, etc. Assuming we both live to the program’s default of 100, it gives the same advice with each scenario, namely:
- I file for retirement benefits in February 2019, the year I turn 70.
- My wife files for spousal benefits in May 2020, the year she turns 66.
- My wife files for retirement benefits in May 2024, the year she turns 70.
- My wife files for widow(er)’s benefits in December 2049, the year she turns 95.
So it seems that since I will turn 70 two months before my wife turns 66, it doesn’t matter if I file and suspend now or not as long as I don’t plan to actually collect until I turn 70. Right? However, considering the amended version of the budget that the House recently sneaked by us, should I file and suspend in January anyway in order to be “grandfathered” in to the current Social Security regulations as protection against any further changes? Also since the new regulation extends deeming to age 70, effectively wiping out the advice above for my wife to file for spousal benefits when she turns 66, should she do anything different in the six-month window that the recent amendment “graciously” established? Thanks for any timely advice!
Larry Kotlikoff: We released the new version on Nov. 15, 13 days after the law was signed by the President. The suggestions the program produced before the update, which you copied in your question, are no longer valid. You need to run the new version of our software that incorporates all the new Social Security provisions. The two of you got badly hurt by the new budget and even though you could file and suspend, doing so will be of no value to your wife in terms of collecting a full spousal benefit off of your work record when she reaches full retirement age and continuing through age 70. Because your wife is five months too young, she won’t be grandfathered against the extension of deeming. And because she is five months too young, you two have lost tens of thousands of dollars in benefits over the two year period. If you both have very high maximum ages of life, the program will now simply suggest you both wait until 70 to collect your retirement benefits. You can also file for spousal benefits at that time, but it sounds like neither excess spousal benefit will be positive. You are old enough to file a restricted application for spousal benefits only. In theory, at least, your wife could file for retirement insurance benefits at 62, and you could file just for spousal benefits at the same time. Then, you could file for your retirement insurance benefits at 70.
Deborah — Chapel Hill, N.C.: Dear Mr. Kotlikoff, I will turn 65 in 2016. I married a younger man (my real retirement plan — ha ha). He will be 59 next year. I plan to wait until I am 70 to begin collecting Social Security, but I have the lower of our two incomes. I earn $50,000 as an independent contractor, and I would like to slow down my work in the coming years, perhaps reducing my income by half. My husband earns $150,000 as a salaried engineer, and he is likely to continue earning the same or more until he retires at age 65. I am really confused about the “file and capture” possibilities and how age and income differences affect how I should apply for Social Security.
Larry Kotlikoff: Unfortunately, my answer here is vague because I don’t have all the details. At first glance it seems that both of you will want to wait until 70 to file for your highest retirement benefits, due to your ages and the new law. The benefits of the file and suspend strategy, which would, in your case, entail your husband filing just for spousal benefits at full retirement age will not apply to you. Because your husband and you both earn reasonably high salaries, it’s very unlikely that either of you could collect an excess spousal benefit in addition to your retirement benefit. So if you have a high maximum age of life, you should simply both wait until you are 70 to collect your retirement benefits. If your maximum ages of life are lower, then you’ll need to look at when to file for retirement benefits using software.
Anonymous — Sachse, Texas: I am 65 and on Social Security Disability Insurance. I would like to know if at age 66 (full retirement age), I can suspend my Social Security until 70 and still receive my disability payments? Would it be better to simply enroll in Social Security at age 66 and then suspend until 70, while working full time if possible (that is, if I can locate a suitable job until age 70)?
Larry Kotlikoff: Your disability benefits automatically convert to a standard retirement benefit when you reach your full retirement age, so you have no choice in the matter, and there’s no need to enroll. At that point you’ll need to decide whether you want to continue receiving your benefit or suspend it until you’re 70. If you suspend, you will stop receiving your current payments for the time being, but you’ll earn delayed retirement credits of 8 percent per year.
Fortunately, continuing to work won’t affect your benefits in this case since after your full retirement age, the earnings test doesn’t apply.
Rebecca — Tallahassee, Fla.: I’m 61. My husband died at 38, and we were married 11 years. He was the bread winner of the family. I have been making a bit more than $50,000 for the last five years. The work is labor intensive, and I don’t know if I will make it until 66. I do have real estate that I own and some that I’m paying on. What are my options?
Larry Kotlikoff: If your widow’s benefit is less than about $1,500, you would likely lose all of it due to the earnings test. But benefits you lose due to the earnings test are restored via a bump up in the level of benefits post full retirement age. You definitely want to run yourself though software that handles the earnings test very carefully. Were you to stop working and were you to have 40 quarters of coverage to qualify for a retirement benefit on you own account, my recommendation would likely be to take your retirement benefit at 62 and flip to your widow’s benefit at full retirement age when it will start at its highest possible value. If you keep working, but start earning less and then take your retirement benefit, be aware that your retirement benefit, not your widow’s benefit, will be bumped up at full retirement age. If your widow’s benefit is larger, you’ll get it, but it won’t be bumped up in reflection of the loss of months of benefits you experience via the earnings test. So you have a complex problem. You need to understand what your total net income will be under different scenarios, including how long you work and how much you earn. But there are software programs that let you enter your future earnings and will help you answer this question.
Vaughn — Fallbrook, Calif.: My wife and I are 63. She has a sparse work history and is unable to work. On her own work history she can receive perhaps $500 per month if she waits until age 66 to apply for Social Security retirement benefits, or she can receive about 20 percent less if she applies now. At age 66, I will be eligible for a Social Security retirement benefit of perhaps $2,600 per month, but in order to boost my benefit, I plan to earn delayed retirement credits until I turn 70. If regardless of when she starts receiving benefits she would receive a full spousal benefit of $1,300 per month when I retire, I think she would prefer to start receiving a reduced benefit now. But if receiving early benefits on her own work history now would reduce the $1,300 she would receive when I retire, I think she would prefer to wait three years and apply when she reaches age 66. If she starts receiving reduced benefits now, when I retire in 7 years would her retirement benefit be stepped up to her full spousal benefit of $1,300 per month, or would it be a reduced amount? (We understand that, with the elimination of the file and suspend loophole, she will not be able to receive a spousal benefit until I start receiving benefits at age 70.)
Larry Kotlikoff: If your wife takes early retirement benefits, it will permanently reduce the total payment she’ll eventually receive when she also starts taking her spousal benefit, which means when you start taking your retirement benefit.
However, once she reaches full retirement age, she should definitely take her retirement benefit even if you have not yet taken your retirement benefit. Once you do take your retirement benefit, she’ll get her own unreduced retirement benefit plus her excess spousal benefit, which together will become her full spousal benefit. So the answer to your question is yes. If she takes her retirement benefit early, it will reduce her total payment once she starts her spousal benefit. Apart from her taking her retirement benefit starting at full retirement age is the question of whether you should wait until 70 to collect your own retirement benefit. It depends on your maximum age of life as well as your wife’s. If you wait until 70 to collect, you will maximize her widow’s benefit should you die.
Julie – Sultan, Wash.: I am currently 65 and will turn 66 in August of 2016. I was hoping to collect spousal benefits when I turned 66 through file and suspend on my ex-husband’s work record. He is already retired. It now appears that I will not be able to do so as I will not reach full retirement age before the 180-day limit on file and suspend. Is there any way to get around this?
Larry Kotlikoff: I have good news for you. You don’t need to file and suspend in order to claim your divorced spousal benefit at your full retirement age. What you are referring to is filing a “restricted application” to receive your divorced spousal benefit. Filing and suspending is irrelevant in this case.
Fortunately for you, because you were born before 1954, you are able to file for a restricted application at 66 (your full retirement age). Moreover, you can switch to your own retirement benefit at 70 if it is larger than your divorced spousal benefit at that time.
Jodi — Dallas: I am 55 and a teacher in Texas. This is a second career, and I paid into Social Security for over 12 years. I will be able to retire as a teacher and receive my pension from the Teacher Retirement System of Texas at 62. I think I understand the windfall elimination provision and the government pension offset provision, and by my calculations, I should still be eligible for about $400 in Social Security benefits at 67 (my full retirement age), even with those terrible provisions. My husband is 69 and already retired. He has started drawing his full Social Security benefit. Our question is: Would I be able to file for Social Security under my husband’s account at age 62 and receive half of his Social Security benefit? Then, I would wait until I reached 70 to apply for my own. If I could apply for his Social Security, would it be subject to both the windfall elimination and the government pension offset provisions? What would happen to my benefit if he dies? This is a very confusing issue!
Larry Kotlikoff: If you can hold off taking your pension from the Teacher Retirement System of Texas and doing so will provide a higher benefit, it may pay you to do this. You could then start your own retirement benefit starting at 62, and though it will be reduced because you are taking it early, it would not be subject to the windfall elimination provision until your Teacher Retirement System of Texas pension starts. Your husband should, I think, wait until 70 to collect his retirement benefit. If you can wait for a higher Teacher Retirement System of Texas pension, he may want to file for his retirement benefit before 70 to activate your spousal benefit with no reduction due to the government pension offset provision, because the government pension offset provision also won’t kick in until you take your Teacher Retirement System of Texas pension.
If holding off on the Teacher Retirement System of Texas pension isn’t permitted or isn’t worth it financially, your best bet may well be to take your own retirement benefit at age 70. You may also want to consider working outside the uncovered state teachers system so that you can earn more years of covered service and potentiall, significantly raise your retirement benefit before it gets crunched by the windfall elimination provision.