Social Security rules are complicated and change often. For the most recent “Ask Larry” columns, check out maximizemysocialsecurity.com/ask-larry.
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. Find a complete list of his columns here. 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. Let us know your Social Security questions. Kotlikoff’s state-of-the-art retirement software is available here, for free, in its “basic” version.
Emma — New York: My ex from a marriage of 13 years just filed for Social Security at 62. I will be 62 next month. I remarried (now separated) a man five years my junior and this marriage has more than ten years. My ex will be getting $1,600 a month; my estimated amount now will be $750. My question is, would it benefit me to get divorced and feed off the percentage from my ex or would I have to take my own if larger than his percentage. If I’m allowed to get his, would I have to wait two years after the final divorce, or perhaps it would be better to wait until 66?
MORE FROM LARRY KOTLIKOFF
Larry Kotlikoff: You will need to get divorced to collect on your first spouse. If you do, you can file for a spousal benefit on your first ex. But if you do so before full retirement age, you’ll be forced to also file for your own retirement benefit. You’ll then end up with your own permanently reduced retirement benefit plus a reduced excess divorced spousal benefit, not a full spousal benefit. The excess divorced spousal benefit equals the difference between your own full retirement benefit and your ex’s. If you have a very small full retirement benefit compared to your ex’s and if the first ex earned less than your husband/soon-to-be-ex, it would likely be best to collect right away on the first ex and then wait until the second ex reaches age 62 and then collect, in your case, an unreduced excess divorced spousal benefit on him.
The nice thing about flipping exes is that you don’t get charged with the same reduction with respect to the spousal benefit for the second ex that you get hit with on the first. I.e., there is no carryover of the reduction factor involved in taking a benefit from one ex to that involved in collecting a benefit from another ex.
If you have been a decent earner, which doesn’t mean you had to earn a lot, both of your excess spousal benefits will likely be zero. In this case, it will likely be best to wait until full retirement age to file just for a full spousal benefit (equal to half of the first ex’s full retirement benefit), perhaps flip to the second ex’s full spousal benefit when he reaches 62, and then wait until 70 to collect your own retirement benefit inclusive of the system’s generous delayed retirement credits.
Now once one of your exes dies, you can flip from whatever spousal benefit you are collecting, including zero, to collecting an excess divorced widow’s benefit on the one who died. And once the second ex dies, you can flip to collecting an excess divorced widow’s benefit based on his work record if the excess divorced widow’s benefit of the second ex exceeds that of the first.
I’m referencing excess widow’s benefits because I’m presuming one or both exes die after you start collecting your own retirement benefit. If not, you can collect a full widow’s benefit and, at 70, you’ll collect the larger of your retirement benefit and your widow’s benefit, which will be described to you as your collecting your retirement benefit plus your excess widow’s benefit (which can be zero).
Precisely what you should do and when is unclear given I don’t know your or your ex’s or your soon-to-be ex’s earnings records.
I recommend you read my column on William Cooper Caldwell Gigolo.
Anne — Dallas: I am a 64-year-old old widow, whose husband died last year at the age of 65. He had not retired nor claimed his Social Security Benefits at the time of his death. I was told that when I turn 66 (my full retirement age) I will be entitled to 100 percent of his benefits as his survivor. My question is, I am still working but would like to retire when I turn 65 next year. Am I entitled to claim my benefits under my earnings for that year and then switch to his at age 66?
Larry Kotlikoff: I am sorry about your loss. You can a) collect your widow’s benefit now or at 65 and wait until 70 to collect your retirement benefit, which might be larger. If you start collecting one of these benefits now, you may lose some or all of it due to Social Security’s earnings test. But if you are flipping to another benefit later, it may be worth collecting one benefit right away if your earnings aren’t that high and won’t all be wiped out by the earnings test. Smart and meticulous software, which incorporates the earnings test, the adjustment of the reduction factor, the delayed retirement credit, the early retirement benefit reduction factor and the early widow’s benefit reduction factor can tell you in a few seconds what’s best to do. Or b) collect your own reduced retirement benefit now or at 65 and then, at full retirement age, collect your widow’s benefit.
Patrick — The Villages, Florida: Hi Larry, when I turned 61, I started receiving $1254 in survivor benefits. I just turned 63 and if I would have taken my own Social Security at 62 I would have received $1654. If I wait until full retirement at 66 my benefits will be about $2150. This is without any inflation increases. Should I wait as long as I can to collect my own Social Security. I’m in good health and financially secure but the extra grand looks pretty good if I wait. What do you think?
Larry Kotlikoff: Very sorry for your loss. Please consider waiting until 70 to collect your own retirement benefit. It will be 32 percent larger, after inflation, for possibly 30 years (if you make it to 100). The big risk of living isn’t dying, it’s living too long and ending up broke. And if you live very long, you’ll be happy to be receiving 32 percent more per month.
Douglas — Westerville, Ohio: I have two questions: 1) My wife elected to begin receiving her benefit at age 62. I started receiving my benefits at 66 which was three years after my wife began receiving hers. Question is now I am receiving my benefits can my wife switch from drawing on her earnings record to my earnings record at 50 percent of my benefit amount? 2) If I return to work can I suspend my benefits and if so will they grow by the 8 percent per year until I reach age 70?
Larry Kotlikoff: Your wife may be eligible for an excess spousal benefit, but it may be small or zero. She should make sure Social Security knows she is married and that she wants this benefit if it’s available. Your wife can also suspend her benefit starting at full retirement age and restart it at 70. You can file to collect an excess spousal benefit on your wife’s work record. But, again, it may be small or zero. You can suspend your retirement benefit and restart if up again at 70 when it will be permanently higher thanks to the system’s Delayed Retirement Credit. Alternatively, if you haven’t been collecting your retirement benefit for a year, you can repay all benefits received plus the Medicare Part B premiums that were deducted from your checks and then file just for a spousal benefit and wait until 70 to collect your own retirement benefit.
MORE FROM LARRY KOTLIKOFF
Paulette — California: Thank you for taking my question. My husband died 13 years ago when he was 73. He had started taking Social Security when he was 65. I am 63 now and working still and earning $50,000 a year. What would benefit me as far as taking his Social Security now if possible, or waiting until 66 to take his then later take mine? I know that I am earning more than the $14,000 allowed and they would tax me, but I do not want that. Also, my husband had his own business and I am sure that I was earning more than he was.
Larry Kotlikoff: Very sorry for your loss. Your best bet may be to take your widow’s benefit now and then take your own retirement benefit at 70. If you lose some or all of your widow’s benefits due to the earnings est, Social Security will compensate you by raising your widow’s benefit when you reach full retirement age in light of the amount of benefits you lost due to the earnings test.
John — Colorado Springs, Colorado: I’m on Social Security Disability and have been for 22 years. I’m 60 and my wife is 56. When my wife turns 62 (I will be 66), will she collect her full Social Security benefit due and will I continue getting my full SSD? We have no other retirement.
Larry Kotlikoff: Your wife should, if possible, wait until full retirement age and collect just her full spousal benefit and then take her own retirement benefit at 70, when it will start at its largest possible value. If, God forbid, you pass away, your wife may do best by starting her widow’s benefit even as early as 60, if she were at or under 60 when you passed away. If she tries to collect a spousal benefit based on her own work before full retirement age, she’ll be deemed to also filing for her own retirement benefit. She’ll then get reduced retirement benefits and an excess spousal benefit, which could be small or zero.
Another option is for your wife to file for her retirement benefit early and for you to withdraw your retirement benefit at full retirement age and file just for a full spousal benefit. Then you would start your own retirement benefit at age 70 at its largest possible value. By withdrawing (not suspending) your retirement benefit, you prevent your disability benefit from automatically being converted to a retirement benefit at full retirement age. Under this strategy, your wife could suspend her retirement benefit upon reaching full retirement age and restart it at a 32 percent post-inflation level at age 70.
If you don’t withdraw your retirement benefit, you should consider suspending it at full retirement age and restarting it at 70. This will preclude your collecting a full spousal benefit (if your wife files early for her retirement benefit), but it won’t preclude your collecting an excess spousal benefit (although that benefit may be small or zero), and it will give you the option of, at any time, asking to receive all your suspended benefits in a single lump sum check, albeit at the cost of losing any delayed retirement credits going forward.
Richard — Connecticut: I am 71 and I took Social Security at 62, but because I am disabled, I receive the full benefit of 66 ($1842). My wife is 67 and took retirement at 62 ($962), 2014 rates. What would have been best for her? I also heard that if she shouldn’t have done it this way, she could repay all she collected and re-file a better way. Is this true? Thirdly, does she use my total or a percentage of it when deciding whose rate is best?
Larry Kotlikoff: There were other things you two may have done better in the past. But as of now, your wife can’t repay and start from scratch. To replay and replay you need to repay within one year of becoming entitled to collect your retirement benefit. What your wife can do is immediately suspend her retirement benefit and restart it at 70 at a higher level thanks to the delayed retirement credits she will collect. This assumes she is not collecting an excess spousal benefit. If she were, waiting might not actually raise her overall check. Also, if you are surely going to die in the relatively near term, having your wife suspend might not be optimal if her widow’s benefit would exceed her restarted (at 70) retirement benefit.
N — Phoenix: I am almost 66 and ready to claim. I have a 15-year-old child. As I understand, I can claim for him and he can receive benefits until 18 or high school graduation (more or less). My question is: Can I file and suspend and let my benefits grow until 70, but still claim for him and have him receive benefits?
Larry Kotlikoff: Dear N, Yes, when you are 66, you can file and suspend your retirement benefit and this will still permit your child to collect a child’s benefit.
T — Texas: I am 65. My wife who is older began taking her social security when she was 64 because she has a medical condition. I am inclined to take my social security when I am 66 when I am fully vested. I will need to continue working at least until I am 68-69 in order to pay off a mortgage. I intend to place part in a 401k and use the balance to pay off the mortgage. The plan seems to make sense. What am I missing?
Larry Kotlikoff: Dear T, Consider taking just your full spousal benefit. This is half of your wife’s full retirement benefit, which is more than her current reduced retirement benefit check.
At 70 you should take your retirement benefit and it will start at its highest possible level.
Y — Henrico, Virginia: My husband just passed away last month at age 59. I am 58. For all of our careers, I have made more than he had and I plan to work until age 70 if possible. What is the best option with Social Security for me?
Larry Kotlikoff: Terribly sorry to hear about your husband. You should wait to collect your own retirement benefit until age 70. You can file starting at 60 for your widow’s benefit. If your earnings aren’t too high, the earnings test may not wipe them all out.