Column: What you need to know about file and suspend under the new Social Security rules

Social Security rules are complicated and change often. For the most recent “Ask Larry” columns, check out

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.

For the past few weeks, 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.

Madeline: My friend Kerry turned 62 today, and her husband, Richard, is 66. Can Richard file and suspend, and can Kerry start collecting spousal benefits while she still works?

Larry Kotlikoff: Richard should not file and suspend, and Kerry should not start collecting anything right now. Were Richard to file and suspend and were Kerry to start collecting spousal benefits right now while she works, several very bad thing​s would likely happen. Kerry would be “deemed” to be filing for her retirement benefit and would receive what amounts to something close to the larger of the two benefits. This is likely to be her own retirement benefit if her full retirement benefit is more than half of Richard’s full retirement benefit. At first glance, she might consider this a very good thing. “Why look!” she might exclaim. “I’m getting more than half of Richard’s benefit.” But what she wouldn’t have realized is that she wasn’t getting a penny from Richard. It was all coming from her own retirement benefit, which had been permanently reduced, because she had been forced to take it early.

There’s another curious twist to this case. Since Kerry is still working, she would also face the “earnings test,” which reduces current benefits for anyone her age earning more than a modest amount. ​

But the earnings test comes with a silver lining. Whatever benefits Kerry might lose under the earnings test between age 62 and the day she reaches full retirement age would be returned to her in the form of a permanently increased benefit starting at full retirement age. Indeed, if she to lose all her pre-full retirement ​age benefits due to the earnings test, the bump up would provide her with her a regular full retirement benefit from full retirement age on.

​Why would Kerry get all the money back in the form of higher checks? Having never received any money in benefits, Social Security would look at her as having never taken early retirement at all. So Kerry would be eligible to receive her full retirement benefit, just as if she’d waited for four years. She could then suspend that benefit and take it at 70 when the checks would have grown by 32 percent since age 66. ​(And, yes, she can still do this under the new law. She just can’t provide benefits to anyone else while her retirement benefit is in suspension. She also can’t receive benefits from anyone else’s work record.)

So under this scenario, Kerry would end up with no impairment to her age-70 benefit. But she’d receive not a penny in spousal benefits ever, assuming, as I am, that her own full retirement benefit exceeds half of Richard’s full retirement benefit. On the other hand, if her own benefit is less than half of Richard’s, by taking it early, she will receive a spousal benefit, but it will be permanently reduced.

The next really bad thing about this strategy is that if Kerry were to pass away prior to Richard reaching age 70, he could not file for just his widower’s benefit while letting his own retirement benefit continue to grow through age 70. Rather than getting a full widower’s benefit, he would get an excess widower’s benefit (the difference between his widower’s retirement benefit and his own retirement benefit, inclusive of any delayed retirement credits).

But because Richard is the larger earner (again, my assumption), if Kerry passed away before Richard reached age 70 and took his own retirement benefit, Richard’s widower’s benefit would be zero. Why would​n’t Richard get the excess widowers benefit if his own retirement benefit was in suspension? Because Social Security doesn’t care about whether you suspend. The nanosecond you file for your retirement benefit, you are in “excess benefit hell,” as I like to say, and can never collect a full auxiliary benefit while letting your own retirement benefit grow.

The only reason that Richard might want to file and suspend, despite the morbid possibility of losing out on widower’s benefits if Kerry passes away, is the equally morbid possibility that Richard could contract an incurable disease and want to take his suspended benefits in a lump sum check. Doing so won’t be possible (thanks to the new law) for those who file and suspend after April 29, 2016. But Richard can file and suspend now and still have this option to request his suspended benefits in a lump sum. If he doesn’t file and suspend, he won’t have the option, even though he is not collecting any retirement benefits until 70 under both scenarios. There is, however, a downside to asking for suspended benefits under morbid scenario two — namely, that this would permanently lower Kerry’s widow’s benefit.

So what should these good folks do? The answer is they should, given what I’m assuming (including that neither is mortally ill), do nothing whatsoever for four years. At that point, Richard will be 70 and will take his age-70 benefit. And when Kerry reaches full retirement age at 66, she should file for just her spousal benefit. This will provide her a full spousal benefit. At 70, she can file for her own retirement benefit.

This strategy will maximize this couple’s lifetime benefits. They are very lucky to be of the right ages to escape the restrictions of the new law.

Matthew: I read Ron Lieber’s article, “The Social Security Maze and Other U.S. Mysteries,” in the March 13 issue of the New York Times and wanted to ask you for assistance in filing my Social Security Administration appeal.

The appeal involves the collection of monthly survival benefits. My wife, Jill, died in February 2010 at age 63. I turned 64 in November 2009. Shortly thereafter, I applied for and received the lump sum death benefit. As you know, the lump sum death benefit application states: “I apply for all insurance benefits for which I am eligible under title II.” At that time and afterward, my salary was too high to receive a monthly survivor benefit based upon Jill’s lifetime Social Security contributions. Also, I decided not to take monthly benefits based upon my Social Security until I reached age 70 in November of 2015. I did not know and Social Security did not inform me that upon reaching my full retirement age of 66 (in November of 2011), the amount of my salary would no longer be a consideration and that I would be eligible to receive monthly survivor’s benefits from Jill’s Social Security. Furthermore, I was not told that receiving this benefit would not reduce the benefit that I would begin to receive at age 70 from my own Social Security.

In August of this year, I received a letter indicating that I should apply online for my retirement benefits, which would begin in November of this year. After I applied, I was informed that I could receive survivor’s benefits for the prior six months, but not back to November 2011.

In summary, the Social Security Administration knew my wife had died because of the lump sum death benefit application. They clearly knew that when I was 66, I was eligible for survivor’s benefits based on her Social Security and that my salary was not a consideration. However, they didn’t notify me. But they did notify me when I was a few months short of my 70th birthday that I could receive six months of survivor’s benefits. Why wasn’t I notified earlier?

It appears that if I had decided to take earlier benefits based on my own Social Security, they may have told me that I was eligible for spousal benefits. This would be a form of discrimination against those who delay receiving benefits until age 70.

I had read several years ago in an IRS tax publication that one had to be married for 20 years in order to receive spousal benefits. I now understand that the correct period is 10 years. We had been married for 16 years. I am now trying to locate this publication. Are you aware of this?

Of course, denial of monthly spousal benefits is a gross injustice after Jill’s lifetime of payments to the Social Security Administration. The appeal is due at the end of December. Any advice that you could provide would be greatly appreciated.

Larry Kotlikoff: You can be married nine months and get widow(er)’s benefits. I agree that this is a terrible injustice and a true disgrace.

Unfortunately, I don’t think Social Security has any legal obligation to inform anyone about any benefit they are eligible to receive and fail to collect. If you could prove that they mislead you or made a mistake in handling your benefit request, you’d have a basis for appeal. But I don’t see a basis given what you’ve written. In short, this is unfair, but totally legal. And it’s something that Social Security has been doing for years and not just with respect to widow(er)’s benefits. If they granted you redress, they’d have to grant redress for millions of others who lost benefits, because they didn’t know they were available and Social Security couldn’t be bothered to tell them.

I asked John McAdams, who works at Social Security and has been blowing the whistle on these kinds of practices, to weigh in.

John McAdams: If you had gotten lucky — that is, if you happened to get a good claims representative when you applied for the lump sum death payment — you would have been told about getting survivor benefits when you turn 66, and you would have received something like the following in your notice: “At this time, I am only interested in applying for the lump sum death payment. I understand that I may be eligible to receive survivor benefits when I stop working or when I attain my full retirement age of 66 in November of 2011. I understand I would need to file a claim with Social Security at that time.”

But no, we are not required to have that discussion or to include such wording in the notice. The good ones do it, but it’s not required.

And no, we don’t notify claimants when they reach full retirement age and are eligible for survivor benefits. If a claimant is already receiving survivor benefits and their own retirement benefit at some point surpasses their survivor benefit, we do send a notice saying something to the effect of: “You can get more on your own record — call us now to apply for it” — with no mention that if you wait longer, you’ll get a more substantial increase.

Jeanie: I got your book a while back and did all my calculations. Now the file and suspend strategy is kaput.

Ideas? We are both 60. We have an $113,000 mortgage on a $700,000 house, another $300,000 in savings and we will (hopefully, probably) inherit another $300,000.

If we wait until 66.7 to collect Social Security, I’ll get $1,200. My husband will get $1,700. I feel like we will never be able to retire!

Larry Kotlikoff: The new Social Security rules are a nasty piece of work that have pulled the rug out from millions of people’s retirement plans. As you know, you and your husband are both too young to be grandfathered in by either of the new law’s two grandfathering provisions.

So what’s best to do? If you both have even moderate earnings histories and could live to 100, you should both wait until 70 to collect your retirement benefits. Until then, you should definitely keep working. You simply do not have enough resources to get by on reduced Social Security benefits for a retirement that could well last longer than your working careers.

You should also consider downsizing your home and moving to a place with low taxes and living expenses. But this depends on both of you finding jobs in the new location.

I’m sorry for delivering this tough love on top of the AARP-sanctioned changes to Social Security that the President proposed and that Congress formulated in some back room, based, no doubt, on the uninformed prejudices of some Social Security-illiterate Hill staffer with absolutely no time for public debate. The passage of the Budget Act of 2015 was a sad day for America.