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Could Even Suze Orman’s Social Security Advice Be Wrong?

A man examines his Social Security paperwork. You can’t collect just your spousal benefit before full retirement, explains Larry Kotlikoff. Photo courtesy of Jim McGuire via Getty Images.

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

Larry Kotlikoff: I received an email with a question about taking spousal benefits early and retirement benefits later, which you can’t do. The writer had seen Suze Orman’s Aug. 24 show on CNBC (the full episode can be seen on iTunes.) Orman answers a question from a viewer named Kevin whose 65-year-old father-in-law and 63-year-old mother-in-law are moving in with him and his wife because they lost most of their savings in 2008. When asked how the in-laws can maximize what savings they have, Orman advises (around 8:25 into the segment):

“If he (the father-in-law) is claiming Social Security right now, she (the mother-in-law) can claim a portion of his — like 30, 35 percent of whatever he is claiming, and then when she gets to be full Social Security age, she can collect her own.”

The email I received read, “Now I am confused,” and asked how the mother-in-law can take the spousal benefit of her 65-year-old husband, and when she reaches her full retirement age claim her own full benefit.

If this is what Orman meant in advising Kevin, that’s wrong. If the mother-in-law takes her spousal benefit early (her husband has to already have filed for his retirement benefit), she will be “deemed” to be filing for her retirement benefit early as well. (For more on Social Security’s deeming provision, see the answer to Maureen’s question below or to Margaret’s question in this column.) So she won’t be able to wait until 66, her full retirement age, to take her retirement benefit. She can only take her spousal benefit by itself after reaching full retirement age.

Maureen V. — Loomis, Calif.: I am almost 62, and my husband is 77. He is collecting his retirement benefits. It sounds as though I can apply for half of his benefits and begin collecting them at age 62. Is that right? What form do I request to do this?

Larry Kotlikoff: No, this is not right. If you apply for your spousal benefit before full retirement age (66 in your case), you will be forced to file for your retirement benefit as well under Social Security’s deeming provisions. In other words, Social Security “deems” you to be applying for both benefits if you are under full retirement age and apply for one of the two. Once you file for your retirement benefit or are deemed to have filed for your retirement benefit, your spousal benefit automatically is calculated as your excess spousal benefit. Your excess spousal benefit is half of your husband’s full retirement benefit minus 100 percent of your full retirement benefit. If this difference is negative, your excess spousal benefit is set to zero.

It could well be that your excess spousal benefit is zero, in which case applying for your spousal benefit at 62 would leave you with a reduced retirement benefit for the rest of your life. Even if you suspend your retirement benefit at 66 and start it up again at a higher value sometime before or at 70, your excess spousal benefit will still be calculated the same way.

The only way to get a full spousal benefit equal to half of your husband’s full retirement benefit, not half of what he’s actually collecting now, (since he may not have started his own retirement benefit at his full retirement age) is to do nothing until you reach full retirement age and then apply just for your spousal benefit. As I mentioned, “deeming” stops when you reach full retirement age.

Laura B. — Elmore, Ala.: I am currently 45, receive disability benefits and have custody of a grandchild. I have no other source of income. Does my child qualify for child benefits?

Larry Kotlikoff: For your child to collect on a grandparent’s earnings record, she must be adopted by the grandparent or both of her parents must be deceased or disabled. Furthermore, there is a maximum family benefit, so even if you meet one of these conditions, there may not be much money, if there is any at all, to be received. But please, if you meet one of these conditions, check with your local Social Security office as to what your grandchild could receive.

Mary R. — San Antonio, Texas: I filed a claim for spousal benefits but was advised by the representative that that my spousal benefit would be fully wiped out by the Government Pension Offset Provision. I receive a Civil Service Retirement System (CSRS) annuity and a small Social Security check on my own work record. My husband currently receives a Federal Employee Retirement System (FERS) annuity and will start receiving his Social Security retirement benefit at age 62 effective October 2013. I am a year older than my husband. I have decided to withdraw my spousal claim until I reach full retirement age or age 70 to see if I can receive a spousal benefit at that time. What, if any, are the consequences if I withdraw my spousal claim now?

Larry Kotlikoff: To begin, your husband needs to have filed and, thus, be entitled to his retirement benefit in order for you to be entitled to collect a spousal benefit. So, you must, within recent weeks, have filed an advance claim for spousal benefits when your husband applied. Since your entitlement date for a spousal benefit can’t be earlier than your husband’s entitlement date for this retirement benefit — October 2013, you have until October 2014 to request withdrawal of your spousal benefit.

But it’s not clear that withdrawing your spousal benefit will matter. Right now, your spousal benefit, actually your excess spousal benefit, is being reduced to zero by the subtraction from it of two-thirds of your Civil Service Retirement System (CSRS) annuity. Since this annuity is, I presume, going to rise over time based on the same cost of living adjustment that your excess spousal benefit receives, I think your CSRS annuity will always wipe out your spousal benefit.

However, it may not wipe out your survivor benefit were your husband to pass away since the survivor benefit may exceed two-thirds of your CSRS annuity. However, there is a small chance, as you seem to have figured out, that by delaying taking your spousal benefit and waiting to collect until full retirement age, two-thirds of your CSRS will be less than your excess spousal benefit with no reduction applied. Waiting beyond full retirement age to take your spousal benefit won’t help because it won’t grow. No credits are applied to either spousal or survivor benefits for waiting to collect them.

Now, if you started your own retirement benefit within the past year, the best thing to do is probably to withdraw both your application for your retirement benefit and your spousal benefit in order to start over. You’ll need to pay back every cent they sent you (but not, as with someone over 65, your Medicare Part B premiums, because you are too young to be on Medicare). Once you’ve done this, the best thing to do is likely to wait until 66, apply just for your full spousal benefit, which may exceed two-thirds of your CSRS annuity, and then, at age 70, take your own retirement benefit at its largest possible value. Commercially available software can be used to see exactly what you will or won’t get down the road from withdrawing both benefits or just the survivor benefit or neither.

Charles P. — Plant City, Fla.: I am 60 years old and still working. My wife is 80. Can she receive a spousal benefit?

Larry Kotlikoff: She cannot receive a spousal benefit until you reach age 62 and file for your own retirement benefit. But if you do this, you’ll get a reduced retirement benefit that will be 75 percent of your full retirement benefit. At full retirement age (66 in your case), you can suspend your retirement benefit (without affecting your wife’s spousal benefit) and restart it at a 32 percent higher value, say, at age 70. But it will always be lower than had you waited until 70 to start to collect. Yours is an unusual situation, so you should run it through commercially available software.

Laura L. — Concord, Mass.: I am 66 and have not started collecting Social Security. My income is minimal, so I may not be able to wait until I’m 70 to collect, but I don’t know. My question is about divorce benefits: I have been divorced twice; each marriage was longer than 10 years and each was more than five years ago. Can I file for divorce benefits from each ex? My first husband is 66; my second is 61. I have no idea if either is collecting Social Security. I assume that my first husband is the largest earner.

Larry Kotlikoff: You can collect a full spousal benefit based on your first husband’s work record starting now, provided you don’t apply for your own retirement benefit. Once you do so, your spousal benefit will be calculated as your excess spousal benefit, which may be zero. A year from now, when your second ex is 62, you can collect the larger of the two spousal benefits based on your two exes’ earnings histories.

I think it’s best to try to wait until 70 to collect your own retirement benefit, but apply for the full spousal benefit on your first husband’s earning record now, and then in a year, check with Social Security to see if your full spousal benefit based on your second ex’s work record is higher.

But bear in mind that If you remarry, you’ll lose your spousal benefit based on your ex’s work record. However, you won’t lose your survivor benefit based on the higher of your two past husbands’ work records because you will have remarried after age 60.

Larry B. — Oroville, Calif.: I am 63 and am trying to wait until 64 before I sign up for Social Security. I understand if I work and make over a certain amount that I need to pay that back. My question is if I have several short jobs, say maybe 10 or 12 jobs before I turn 66, can I keep signing back up for Social Security if my earnings exceed the limit I can make? Or do I lose Social Security if I keep signing back up after finishing these short jobs?

Larry Kotlikoff: Once you apply for your retirement benefit, you can’t suspend it until you reach full retirement age (66 in your case). If you lose benefits via the earnings test, don’t worry about it because when you reach full retirement age you’ll get more than full credit for those lost benefits via what’s called an “adjustment of the reduction factor” under which Social Security will permanently raise your benefit level to compensate for your lost benefits.

Losing benefits via the earnings test should not be your worry right now. Were you to not work at all, you’d end up with permanently reduced retirement benefits because you took them early. If you wait until 70 to collect, your benefits will start at close to a 46 percent higher value. So any benefits you do collect before full retirement age will be with you at their reduced level forever and those benefits could be roughly 46 percent larger starting at 70 were you to wait.

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions

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