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Social Security rules are complicated and change often. For the most recent “Ask Larry” columns, check out maximizemysocialsecurity.com/ask-larry.
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 columns 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 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 before the changes from the Bipartisan Budget Act of 2015 went into effect. The three authors are now doing an overhaul of the book. The new version of “Get What’s Yours” should be out this spring.
Kotlikoff has been keeping readers updated on how the budget act changes a number of Social Security rules with “This is not how you fix Social Security,” “Congress is pulling the rug out from people’s retirement decisions” and “12 secrets to maximizing your Social Security benefits under the new rules,” as well as his answers to viewer questions. We’ll continue publishing updates on what this new law means for you. Stay tuned.
If your optimal Social Security lifetime benefit maximization strategy requires you or your spouse to file for retirement benefits and immediately suspend them by April 29, make sure you do so! I just received an email from a 67-year-old gentleman who just learned about the new Social Security law and asked me if he needed to file and suspend before April 30 to permit his wife to collect about $60,000 over the next four years starting in July. I explained that was absolutely the case, and if he doesn’t meet this deadline by even a second, he will lose $60,000.
I hope that all of you reading this column have a Social Security maximization plan in place. I have a terrible feeling that hundreds of thousands, if not millions, of people are going to miss this deadline, because they were uninformed about the new law and its incredibly nasty and totally unfair deadline.
If you don’t have a clear plan in place, please review my columns (post Nov. 2) and run highly accurate Social Security benefit maximization software to figure out what to do. If you are between 66 and 70 and you should file and suspend, you’d do best, I believe, to camp out in your local office for a day. When you do see a representative, make sure they fill out a retirement benefit application that requests benefits effective on the date you go in, and in the Remarks section of that form, make sure that it clearly states that you wish to suspend your retirement benefit effective the same date.
You can do this online as well, but it is rather confusing. The online form will ask you, “What date should benefits start?” Enter April 2016. Right below, it will also ask you if you want to delay receipt of retirement benefits and just take spousal benefits. Answer “no” to this question, because you are trying to give your spouse spousal benefits, but you’re not trying to take spousal benefits for yourself. Finally, you must specify in the Remarks section that you want to file for your retirement benefit effective April 2016 and also suspend it effective April 2016.
Do not mess this up! Tell everyone you know who is between 66 and 70 to make sure they know what their Social Security plan is before April 29. Bear in mind that Social Security has systematically misinformed its staff about the new law and has provided no warnings to the public that they need to determine if the deadline applies to them.
Judy – Pittsburgh, Pa.: My husband is 66 and has had higher earnings throughout his career. I am 64, and we have been married for 40 years. We are both still employed and plan on working until we are 70. As a result of the new law, I believe my husband has until April 2016 to enroll and immediately suspend his Social Security benefits. Would I be able to wait until I am 66 to claim spousal benefits? Would I be able to claim them now at a reduced amount?
Larry Kotlikoff: Your husband needs to file and suspend before April 30. That’s only 10 days from now! See what I wrote above. You must not file for anything until you reach 66, and then once you do, you should file for just your spousal benefit. When you are 70, you should file for your retirement benefit, and when your husband turns 70, he should restart his retirement benefit.
READ MORE: 12 secrets to maximizing your Social Security benefits under the new rules
Felicia – Saline, Mich.: My mother is 66 and recently had a heart attack. She has damage to her heart, and doctors say that even in an ideal situation after recovery, she will no longer be able to work. She started taking Social Security at 62 and receives $777 per month. She worked part time this year making an extra $150 per week. She has about $55,000 in a 401(k) and receives $150 from a pension. She has no real estate and a vehicle worth probably $4,000. She has about $15,000 in debt. What is the next best step for us to ensure she lives comfortably? We will also have to find her new living arrangements upon her release from hospital. If we cannot get her into low-income housing at $450 a month, we will be looking at a $700 to $800 per month payment. Will the 401(k) balance discount her ability to obtain Social Security disability? Will we be able to get her Supplemental Security Income increased?
Larry Kotlikoff: Your mom is too old to collect disability benefits, and I don’t know if she can collect more in Supplemental Security Income benefits. Most likely, the best thing to do is to have her live with you and share resources. The second best thing is to use the remaining funds she has to effectively buy her entrance into a good assisted living facility with an associated nursing home, which will take Medicaid funding when her money runs out. I’m very sorry to hear about her situation. I know far too much from personal experience about what you are going through.
Rose – Pinson, Alabama: I want to apply for divorced spousal benefits when I turn 66 and apply for my own Social Security benefits when I turn 70. I will turn 66 in 2018. Will I still be able to do this considering the changes in the benefit disbursement laws that were signed by Obama in November?
Larry Kotlikoff: Yes, you can do this. You are grandfathered. I presume that you were married at least a decade before getting divorced. That’s critical.
READ MORE: What if you can’t get an appointment with Social Security before the file and suspend deadline?
Craig – Conroe, Texas: Like many Americans, I have bounced around and had quite a few jobs in a couple of states. I currently have enough credits to actually qualify for a Teacher Retirement System pension in Texas. However, due to my lack of years of service the amount will be less than 50 percent of what I make now. I am considering moving closer to my family out West, and should I do that and work another 10 years, I should have around 23 years or more of contributions to Social Security. Someone mentioned that may qualify me to reduce the penalty that is imposed by the Windfall Elimination Provision. Clearly, we struggle to live off of a teacher salary now, and I cannot fathom attempting to live off of half that a decade from now. Could you explain how this works when individuals have multiple careers and receive a state pension where Social Security benefits are not taken out? Also, could I receive my state of Texas retirement benefits starting in 2019 at around age 55 (at $3,000 a month), work in the private sector, contribute into Social Security for a decade or so and then apply for Social Security benefits?
Larry Kotlikoff: Regardless of when you take your Teacher Retirement System pension, you can work in the covered sector and potentially mitigate the Windfall Elimination Provision. It may be best to take your Teacher Retirement System pension later if delaying its receipts makes it start at a higher level, because the Windfall Elimination Provision doesn’t take place until you actually start receiving your non-covered pension. In addition, the Government Pension Office provision doesn’t kick in until then. If you are married or are divorced (having been married for 10 or more years), you may be able to collect a spousal or divorced spousal benefit. The Government Pension Office reduces your spousal or divorced spousal benefits by two-thirds of the amount of your pension. I think you need to start using a highly accurate Social Security benefit maximization program that can show you exactly what were to happen were you to spend the next 10 years working in the covered sector. You should also consider continuing to work at your current job to boost your Teacher Retirement System pension. That may be the better route to maximizing your lifetime spending power.
READ MORE: Social Security staffers are clueless about the new law
Mike – Vineland, N.J.: My mother passed in 2002, and my father never applied for the widower benefits. She was 66 at the time. He is now 85. Can he get this benefit?
Larry Kotlikoff: If she was the lower earner, probably not. If she was the higher earner, he may be able to add an excess widower benefit. You can either check with Social Security or run online software that figures out the excess widower benefit your father can receive.
Sally – Denver, Colorado: I have been following your columns about the recent Social Security changes, but I am still a little confused as to our own situation. I understand there is a six month grandfather period until April 29, 2016. However, my husband and I recently turned 65 and 64 in November 2015. On November 3, 2016, he turns 66, and three days, later I turn 65. Do we have any options to take spousal benefits at all, or are we out of luck due to our birthdates? I am wondering if I should file for my benefits before my full retirement age sometime before April 29, 2016 — even though I’ll be taking about $250 less per month for life (about $1,400 of my full $1,650 due). Then at his full retirement age in November, he can file for one-half spousal benefits, with the intention to wait until 70 to file for his own benefits. His benefits are higher than mine at the full retirement age. Would he have to file and suspend after full retirement age for his own benefits or not file for his own benefits at all? Would this strategy work for us, or is it foreclosed by the new changes? I would appreciate hearing your answer. I appreciate the information you have published regarding these Social Security issues.
Larry Kotlikoff: The April 29 deadline does not apply to you. Unfortunately, you are both too young to pursue the standard file and suspend strategy. Your second strategy in which you take your retirement benefit early and have your husband collect just a spousal benefit between 66 and 70 may be best. Or it may be best for him to take his retirement benefit sometime before 70 to permit you to just collect a spousal benefit through age 70. On the other hand, it might be best until 70 to collect your retirement benefits. What’s optimal is a very complex calculation.
Laurence Kotlikoff is a William Fairfield Warren Professor at Boston University, a Professor of Economics at Boston University, a Fellow of the American Academy of Arts and Sciences, a Fellow of the Econometric Society, a Research Associate of the National Bureau of Economic Research, President of Economic Security Planning, Inc., a company specializing in financial planning software, and the Director of the Fiscal Analysis Center. Kotlikoff's columns and blogs have appeared in The New York Times, The Wall Street Journal, The Financial Times, the Boston Globe, Bloomberg, Forbes, Vox, The Economist, Yahoo.com, Huffington Post and other major publications.
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