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I’ve fallen on hardship. Should I take Social Security early?

Social Security rules are complicated and change often. For the most recent “Ask Larry” columns, check out maximizemysocialsecurity.com/ask-larry.


Dear loyal readers of my “Ask Larry” column,

I’ve been writing my Social Security column for PBS NewsHour for over three and a half years. It has been a great honor to work with PBS, which I deeply respect. I’ve decided, however, to move my Ask Larry column to my company’s website, Maximize My Social Security. Please go to www.maximizemysocialsecurity.com, click “Ask Larry” at the top, and then submit your questions.

My best,
Larry


Rebecca: I have basically been a stay-at-home mom due to my husband’s disability (100 percent service connected veteran), and I only have 30 credits of work history, although I know it’s more. I was told to contact IRS about my earnings. My husband receives Social Security since his injury many years ago. I have been diagnosed with rheumatoid arthritis and cannot work now. My husband’s income eliminates my ability to collect Social Security income, but we’ve fallen on hardship. What can I do? I was going to take early retirement to help things along, but now that seems hopeless.

Larry Kotlikoff: If you can manage to earn $5,040 in each of the next three years, you’ll have your 40 quarters — actually 42 quarters. You don’t have to work all year. Indeed, you could, theoretically, earn that amount in 15 minutes. Social Security doesn’t care how long you worked. But if you earn $5,040 in a given year you get four quarters. The $5,040 will be adjusted for inflation by the way.


Katherine: I have been receiving my widow’s survivor benefits for the last two years, starting at age 60. I am still working a part-time job (after retiring from my 30-year career), and I find that it is very difficult to live with the earning cap of $15,720 a year. I plan on waiting to collect my full retirement benefits upon reaching my full retirement age, but I’d like to earn more money right now. What I would like to know is if it’s possible to suspend my survivor’s benefits now, so I can earn more money while I’m still able to work. And if I can, are there any drawbacks or consequences, such as having to repay what has already been paid to me?

Larry Kotlikoff: You can’t suspend your widow’s benefit. You can only suspend a retirement benefit. I think your better move is to earn what you can. Yes, it will reduce your benefits by 50 cents for every dollar you earn above the $15,720. But at full retirement age, your widow’s benefit will be bumped up to account for all the lost benefits due to the earnings test. This won’t help you, however, if you flip onto your own retirement benefit at full retirement age. But if you wait until 70 to take your retirement benefit, you’ll at least get four years of higher widow benefits, which will offset somewhat the loss in benefits between now and full retirement age. At 70, if your own retirement benefit is higher, which I’m assuming is the case, you will just take your retirement benefit.


Robert – Scottsville, N.Y.: My wife took Social Security at 67. I am planning to retire at 64. I was planning to take spousal benefits for 20 months, then take my own benefit at full retirement age — age 66. Would this be allowed under the new rules?

READ MORE: Despite decreased benefits, many Americans take Social Security early

Larry Kotlikoff: No, and it wouldn’t be allowed under the old rules either. If you were 62 before Jan. 2, 2016, you can file just for your spousal benefit at full retirement age and wait until 70 to take your own highest possible retirement benefit. This will maximize the excess widow’s benefit your wife would collect assuming your age 70 benefit exceeds her retirement benefit.


Patrice – New York, N.Y.: Should I take spousal death benefits? I’m 62 and still employed. I was just informed that I was entitled to 74 percent of my deceased husband’s Social Security benefits since I turned 60 and that it’s six months retroactive. I was also informed that it will not affect my Social Security benefits when I retire. When I called to inquire last year I was told differently. Should I hire a lawyer who specializes in these types of matters? I don’t want to make a wrong decision.

Larry Kotlikoff: You might need to run expert software to see what to do. There are three things that come into play here. First, when did your deceased spouse take his retirement benefit (if he did take it)? Second, is your own retirement benefit at age 70 higher than your widow’s benefit when it peaks? Third, to what extent are you now subject to the earnings test, and for how long will you be subject to it? The first question matters, because if your husband did take his retirement benefit early, your own widow’s benefit will reach a peak before your full retirement age. The second question matters for whether you should take your widows benefit or your retirement benefit first. The third question will affect how much you receive under different claiming strategies.

READ MORE: 5 secrets and 5 gotchas to help you navigate Social Security’s new rules

My guess is there are at least 10,000 filing strategies that expert software needs to consider to find the one that maximizes your lifetime benefits. The software needs to incorporate what’s called the “adjustment of the reduction factor,” which will bump up your widow’s benefits or your retirement benefit based on the amount of benefits you lose to the earnings test. Unless you are earning so much that the earnings test taxes away all your benefits, you should take either your widow’s benefit starting immediately and then wait until 70 to take your own retirement benefit or take your own retirement benefit starting now and take your widows benefit when it peaks, which may be before your full retirement age.

I think you were misled about getting widow’s benefits retroactive to six months. The Social Security website says, “Retroactive benefits for months prior to attainment of [full retirement age] are not payable to a retired worker, spouse, or widow(er) if this results in a permanent reduction of the monthly benefit amount.” This would be your case. So retroactive benefits aren’t payable to you for widow’s benefits or retirement benefits.


David – Greensboro, N.C.: I retired a year early in 2015 at age 65 to spend more time with my disabled wife who was only 61. She passed away in February 2016. Would it be beneficial for me to suspend and “reset” my benefits until I’m 70? Would I be able to file for my deceased wife’s benefits when I reach age 66 in November 2016? Are there any better options for me?

Larry Kotlikoff: Most likely you will want to file just for your widower benefit starting immediately and ask for it retroactive six months if you are six months beyond age 66. At 70, you should take your own retirement benefit. You do not want to file for your retirement benefit and suspend it. That act could cost you every penny of your widow’s benefit.


Jim: I’ve been getting disability since 2001. I just turned 65. What do I need to do? Will I have to reapply?

Larry Kotlikoff: Your disability benefit will automatically become your retirement benefit when you turn 66. You can, at that point, suspend it and restart your retirement benefit at 70 at a 32 percent higher value.


Joel: I have a client that is 67, and his wife is 40. He is collecting his Social Security right now, and she is receiving a benefit as well. His benefit is about $1,695 a month and hers is $895 a month. I should also mention that he has a 7-year-old son who is also receiving $895 a month. The father is not disabled. The wife is from Indonesia. I have searched and searched and cannot find any legitimate information or literature on this, and I would like to educate myself on the post-death consequences, etc.

READ MORE: How to get what’s yours from Medicare and Social Security

Larry Kotlikoff: If he dies, his child will collect a child survivor benefit, and his wife will collect a mother’s benefit. This would continue until the child is 19 if still in school, or 18 if out of school. At 60, she can collect a reduced widow’s benefit. If she waits until full retirement age to collect her widows benefits, her widow’s benefit won’t be reduced.


Phyllis: Bought your book and loved it! Please help… I was married for 33 years and worked 20 years. I was born in October 1954. My husband died four years ago, but before he died, he divorced me. (The cancer spread to brain — neurosis and psychosis — and it was very ugly.) I did not remarry. I’m now 61. I want to claim my Social Security at 62 and then his with my survivor benefit at 66 — my full retirement age. Social Security tells me I cannot do this, and I’ve tried two offices. Please help. I don’t think I am getting the correct information and want to do the best thing. Thank you in advance!

READ MORE: Can my ex collect Social Security on my work record?

Larry Kotlikoff: If you are earning too much money, you could lose all your benefits due to the earnings test. It reduces your benefits 50 cents on the dollar for every dollar you earn above $15,720. That’s the only explanation I can come up with for why they would tell you this. Even if you lose some but not all your retirement benefits, you should take them at 62 if that’s part of the Social Security maximization strategy. It could be better to take your widow’s benefit now and your own retirement benefit at 70. You need to run expert software that incorporates the earnings test to find out.


Max – Ariz.: I filed and suspended my benefits a little over a year ago when I reached full retirement age. My original plan was to wait until 70, but now I may need to claim Social Security benefits in order to qualify for a mortgage loan. Will I be able to re-suspend after the loan is approved, or am I limited to only one suspension in my lifetime?

I am currently 67, single and retired, and I’m living mostly off IRA distributions. I tried asking Social Security about this by email, but they just keep sending me a link to their website, which doesn’t address limits or multiple suspensions.

Larry Kotlikoff: The answer is yes. Just don’t ask for your suspended benefits in a lump sum in which case they will reset your monthly benefit back to the level at which you suspended it.


Ellen: I was divorced after 10 years of marriage in 1980. My ex is four years older than I am and began receiving his Social Security at 62. I began collecting on his record when I reached full retirement age (66) for what is called my full benefit, but it’s half of what he was receiving at the time. Last fall, I applied for my benefit on my own record. I began receiving that five months after turning 70, as it took longer than usual to process, and my application kept getting stuck in their system. (I made multiple phone calls including two to the office manager where I live. I also had to correct the information they had for the county and state of my divorce, but I digress.)

On to my question. At various intervals since I turned 60, I have visited my Social Security office to ask if I could go back to receiving benefits on his full amount if he passes before I do. The answers I receive are vague. I’ve been told, “You are not locked in,” or “You asked in the wrong way. You will receive your benefit plus the difference between yours and his.” Does this statement about the difference between the amount I receive and his benefit amount come out the same as the amount he receives at his passing if he predeceases me? My ex is older than I am and so I wanted to make sure I was applying in the correct order so as to avoid being one of your horror stories. My ex earned the top amount for maximum benefits (if he had waited to start drawing until full retirement). I had gaps in my earnings due to raising two children and was by far the lower earner.

READ MORE: Should you file for your Social Security benefits online, over the phone or in person?

I have not read your book, but I have read your columns since PBS NewsHour first began to run them online. I read the Forbes article on Social Security Horror stories today.

Thank you very much for considering my question. I would like any answer I receive to help others in some way, as it’s too late to change my decisions.

Larry Kotlikoff: When your ex passes, you’ll receive his check (that is, his retirement benefit) and nothing more. It will, however, be described as the sum of your own full retirement benefit plus your excess divorced widow benefit. The excess divorced widow benefit will just equal his check less your full retirement benefit. So it does amount to the same amount under either description.


Rich: My wife started taking her full benefit based on her own earnings starting in December 2015 when she turned 66. I will be 66 in May of 2017 and am taking no benefits. Can I collect a spousal benefit at age 66 until I turn 70? And is this the best strategy? Her spousal benefit when I turn 70 will be about the same as her present benefit.

Larry Kotlikoff: You can file just for a spousal benefit when you turn 66, provided that your wife continues to collect her retirement benefit. She has the option to suspend it and restart it at a higher level at 70. Had she suspended it before April 30, her retirement benefit would be in suspension now and grow through age 70 when she would restart it. In this case, you would still be able to collect just a spousal benefit when you turn 66 and take your own retirement benefit at 70. However, it sounds like she did not suspend before April 30. And were she to suspend now, she could not provide you any benefits while her own retirement benefit remained in suspension. Yes, Social Security is treating people who did x before April 30 very differently from those who do x after April 29. The difference in treatment can amount to as much as $60,000. If this sounds extremely unfair, we’re on the same page.

Given the new law and given what you folks have and haven’t done, I think you need to run a very precise Social Security benefit maximization program to see if it’s best for your wife to suspend for a couple of years even if that means you’re not collecting a spousal benefit for that period of time.

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