A man takes the oath of allegiance at a citizenship ceremony at Saratoga National Historic Park. Creative Commons photo courtesy of flickr user Samantha Decker.
Larry Kotlikoff’s Social Security “secrets” and his answers to your questions (Answers to Benign and Scary Social Security Questions, Social Security Confusion: Our Expert Dispels Some More and 11 Social Security Mistakes People Make) have prompted so many of you to write in that we decided to inaugurate a regular feature here on Making Sen$e — “Ask Larry.” 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. We run “Ask Larry” on Mondays, where he takes my seat as the sage of the day. Unlike my answers, his are short and sweet (or, for some emailers, bitter) and so he takes on half-a-dozen questions or so, instead of just one.
To investigate further for yourself when best to begin collecting your Social Security benefits, you can try Larry’s software: Maximize My Social Security. Note, however, it is not free.
Mack Van Allen: My wife was divorced when we married. Her husband died after the divorce. Does she qualify for any of her former husband’s Social Security benefit? (My wife qualifies for nothing on her own since she was in a public pension program.)
Larry Kotlikoff: If you got married after she was 60 or she has a child of the deceased husband under 16 in her care, you’re in luck. Otherwise you need to divorce her and live in sin. But because she worked in non-covered employment, the survivor benefit she could potentially receive, if you divorce her, could well be dramatically reduced or wiped out by the government pension offset provision.
Cleeton Powell: I am about to become a U.S. citizen. Having never worked in the U.S., can I claim Social Security?
Larry Kotlikoff: You’ll need 40 quarters of coverage. Forty quarters of work during which you pay into the Social Security system, that is. If you live outside the U.S., you will, as a U.S. citizen, need to pay taxes on your world wide income. Consequently, you will be forced to pay Social Security payroll taxes on your foreign earnings. That’s the bad news. The good news is you’ll start earning quarters of coverage.
Elena: I am widowed and will be 63 this year. Can I receive spousal benefits? Can I then also take early retirement? Do the spousal benefits change if my husband was on disability?
Larry Kotlikoff: You can’t get spousal benefits. You can potentially receive survivor benefits. If you were a higher earner than your spouse, you may want to take your survivor benefit starting now and wait until age 70 to take your retirement benefit, at which point it will be as high as possible. If you were a lower earner than your spouse, you may want to take your retirement benefit now and wait until full retirement to take your survivor benefit.
Susan: Is this true? Though Social Security is collected from all earned wages, a low earning year does not count for anything towards one’s Social Security payments. According to the calculator on the Social Security Administration’s website, my payments will not increase by continuing part-time work in retirement. Although Social Security is collected from my paycheck, my payments will not increase one penny. I have not reached the 35 years of contributions, and my current earnings are very low. In other words, I am making a “donation” to the Social Security system. Maybe I should not bother to work!
Larry Kotlikoff: Not quite true. If you haven’t contributed for 35 years, extra earnings will affect your benefit — even low extra earnings. Social Security looks at your highest 35 years of earnings in figuring your average indexed monthly earnings (AIME). Once you have 35 years into the system, extra earnings that aren’t higher, after they’ve been wage-indexed, than any of your prior years of earnings won’t be included in forming your AIME.
Curtis Brown: I was married and divorced twice with neither lady remarrying, but the second wife died after we were divorced. Am I entitled to benefits from either lady? I’m 64 and have not filed for Social Security as of yet. Any help?
Larry Kotlikoff: If you were married to the surviving ex-spouse for 10 or more years, you can collect a spousal benefit based on her earnings record. You are also eligible to collect a survivor benefit based on your decedent former ex-spouse’s earnings record if you were married to her for 10 years or more. But you can’t collect on both spouses. I’ll assume that you were married to both ladies for 10 or more years. If your deceased former spouse had a reasonably high earnings history, it may be best for you to apply now or at full retirement age for a survivor benefit based on her earnings record and to wait until 70 to collect your own retirement benefit. But if your deceased spouse didn’t earn much, but your surviving ex-spouse did, a better strategy may be to wait until you reach full retirement age and apply just for a spousal benefit based on your surviving ex’s earnings record and then wait until 70 to start to collect.
Dawn Hein: I am waiting until I’m 70 to file. Am I also able to collect from my ex-husband for additional benefits?
Larry Kotlikoff: Yes if you were married for 10 or more years. If you are at or above full retirement age, hurry over to Social Security and apply just for your spousal benefit. If you are below full retirement age, applying for a spousal benefit based on you ex’s earnings record will force you to take your own retirement benefit early. This is Social Security’s deeming provision, which only applies if you are below full retirement age.
David Wasley: When I retired at 62, I had only half enough service credits to qualify for Social Security or Medicare (I worked for 38 years but was exempt). However, since starting retirement I have been receiving a few hundred dollars per month of “imputed income” from my former employer – which is subject to FICA. Thus, over the last six-plus years I have accumulated 20-plus “quarters” of service credit in addition to what I had prior to retirement. This gives me more than enough “quarters.” Am I now eligible for Social Security or Medicare? Thanks — I’m hesitant to even raise this complex situation with my local Social Security office!
Larry Kotlikoff: You should be eligible for medicare at 65. You’ll need 40 quarters to qualify for a retirement benefit. Make sure you are filing a tax return declaring your “imputed income.” The Social Security office will know if you have enough quarters.
Audrey Bekoff: My husband died before he could collect Social Security. However, he always paid the highest amount due just in case he ever lived long enough to use it. I have worked all my adult life and paid Social Security, but all I get now that I am 85 and still working is about $1,150 a month. People who never worked get more than I do. I called to complain but the answer is not satisfactory. I can’t control inflation and his payments were equivalent to high prices at those times, any suggestions?
Larry Kotlikoff: The amount you are getting seems low. But it’s probably low because your husband took his retirement benefit early and then you probably took your survivor benefit early. You got hit by two reductions.
Here’s the general story:
If you take your retirement benefit early (before full retirement age), it will be reduced and if you die, your spouse’s survivor benefit will equal the benefit you were receiving, so it too will be permanently reduced. Furthermore, if you widow/widower takes his/her survivor benefit early, this reduced survivor benefit will be reduced yet again due to the fact that the surviving spouse took her/his survivor benefit early. So this is a double whammy. If you don’t take retirement benefits early and die before full retirement age, your surviving spouse’s survivor benefit will equal your full retirement benefit. If you don’t take retirement benefits until after full retirement, your surviving spouse’s survivor benefit will equal the benefit you were receiving or would have received had you applied right before you died, namely your full retirement benefit augmented by the Delayed Retirement Credit.
Robert Kraus: I am a self-employed paralegal who retired at 62 because of declining work. Nonetheless, I made more than the allowable limit and therefore had my benefits reduced or I paid back benefits for several years until I reached full retirement age (66). In “See How Work Affects Your Benefits” (SSA Publication No. 10069), it says if benefits were withheld because I continue to work, “we will pay you a higher monthly benefit amount when you reach full retirement age.” I was told in notices from Social Security that such benefit reductions are not truly lost and my benefit would be increased at full retirement age to account for benefits withheld due to earlier earnings. When I turned 66 last March, I called Social Security several times and no one there seemed to have a clue what I was talking about. Recently, when my last year’s earnings were calculated to increase my benefit by a few dollars, I asked for reconsideration based upon a request for an increase which included recalculation for those prior benefit reductions. Am I wrong? And when should this benefit increase take effect?
Larry Kotlikoff: You aren’t wrong. This is called the Adjustment of the Reduction Factor. I don’t know how long it takes for them to make the adjustment. It could take until January 1st. I bet that’s the case. But go in and ask them to check on this provision and tell you when it will be applied in your case.
Dita Peatross: I read with great interest the recent Larry Kotikoff article on 34 things you need to know about Social Security. My question: I started collecting Social Security at age 65 (one year before my “official” start date of 66). Now that I am 66, can I do a Start Stop Start and apply for spousal benefit until I am 70 and then restart my own Social Security at the higher rate? If so, how do I figure out the amount of spousal benefit?
Larry Kotlikoff: The list is now up to 42 things. You can, indeed, suspend your retirement benefit at or after reaching full retirement age and collect as much as 32 percent higher benefit starting at 70 depending on precisely when you suspend. If you spouse has an earnings record that includes more than 40 quarters of coverage and is either collecting retirement benefits or has filed and suspended their collection you can apply for just a spousal benefit once you hit full retirement age. But if your full retirement benefit exceeds half of hers, the spousal benefit they calculate for you will be zero. Had you not taken benefits early, you would have been able to collect half of your spouse’s full retirement benefit as your spousal benefit. But since you did take your own retirement benefit early, the formula they use to calculate your spousal benefit is different than if you didn’t take your own retirement benefit early.
If your husband was collecting his retirement benefit when you applied for yours, Social Security deemed you to be applying for a spousal benefit as well, so part of your current check should already include a spousal benefit if your own full retirement benefit is less than half of his. If it’s been less than one year since you applied for your retirement benefit, you should be able to repay everything you received and not face “gottcha” with respect to which spousal benefit formula you face. But whether this makes sense very much depends on your earnings record and that of your husband’s. Sorry this answer is so complicated. The most important thing I need to tell you, though, is that if you do take suspend your retirement benefit at full retirement age, make sure to pay each month’s medicare part b premium out of your own pocket, i.e., write Social Security a check each month. Otherwise, Social Security will not give you the delayed retirement credits. Finally, if you were the low earner, suspending your retirement benefit may not lead to a higher total check once you start taking your retirement benefit again at 70. Indeed, you are the lower earner, suspending your retirement benefit could lead you to get a smaller total benefit before age 70 and a smaller one after age 70!!! We are adding the start stop start strategy to our software. It should be incorporated within two weeks and show you whether suspending at full retirement age will help or hurt you.
Let it be known that this entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions