When it comes to Social Security, patience provides a tremendous return

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

Boston University economist Larry Kotlikoff has spent every week, for over two years, answering questions about what is likely your largest financial asset—your Social Security benefits. His 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 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 by Simon & Schuster.

Watch Larry explain how Paul and his wife could collect an extra $50,000 in Social Security benefits:

Andrea – Lihue, Hawaii: My husband is 66. I am 58. We are employed as teachers. My husband is healthy and still has energy for this job. We have a ton of credit card debt, plus loans for two children going through college and a loan for my master’s degree. The credit cards were used for travel for our children to and from college and for us to visit aging parents. We live far away from family, and our children went to college out of state. Not the best decision now with the debt, but when you live in Hawaii and all the family is on the mainland, our kids didn’t even consider in-state universities.

Here is my question: Should my husband take Social Security benefits at his full-retirement age and use it to pay down credit card debt? Should he wait until age 70 with $25,000 credit card debt and try to continue with monthly payments? Do we have any options with student loans?

Larry Kotlikoff: You have a complex situation, and only expert life-cycle financial planning software can assist you. Social Security provides a tremendous return to patience. If you have some other means of paying down the debt or if it doesn’t carry a huge interest rate, your husband should wait until 70. This will maximize his retirement benefit and also your widows benefit were he, God forbid, to pass away.

Enid – Seattle, Wash.: I have been receiving Social Security disability benefits since 1995. I am now 63 years old. I know that when I turn 66 my Social Security Disability Insurance program (SSDI) will automatically roll over to regular Social Security retirement benefits at the same rate. Here is my question: Since I’m eligible for early retirement, can I make the switch from SSDI to regular Social Security without a penalty? If the rollover is at the same rate at age 66, it seems like the same would hold true earlier.

Larry Kotlikoff: Your disability benefit will just change names and be called your retirement benefit when you reach full retirement age. It won’t be changed. You can, however, choose at full retirement to suspend your retirement benefit and restart it at 70 when it will be 32 percent larger after inflation.

You could apply for and choose to receive reduced retirement benefits at age 63, even if you are still entitled to disability. However, your benefits would be about 20 percent lower until you reached full retirement age, at which point you would return to the full rate. If you switched to retirement benefits at age 63 without also being entitled to disability benefits, the 20 percent reduction would be permanent. The only reasons for a person on disability to apply for reduced retirement benefits is if their disability benefits are being offset due to receipt of workers compensation or public disability benefits, or if they have eligible children who would receive higher benefits under the more generous family maximum benefit formula that applies to retirement accounts.

Anonymous – Euharlee, Ga.: My husband is 60 and works as a professor at a state university. His plan is to retire from full-time work when he turns 66, draw his pension and only work part time for perhaps four more years. He wouldn’t need Social Security until he turns 70. He will have at least 31 years in full-time work (as he moved here from the Netherlands). I am 64, and my work has been sporadic and at a lower income. Social Security projects only about $300 per month for me. Should I apply for spousal benefit at 66 and just forget about my own Social Security? We both come from families with longevity into the 80s and 90s. I plan on living to be at least 100.

Larry Kotlikoff: You can’t collect your spousal benefit — which sounds like it will exceed your own retirement benefit — until your husband files for his retirement benefit. If you can take it when you are 66, your spousal benefit will be at its highest possible value. That would require your husband to file for his own retirement benefit at 62.

For a comprehensive understanding, let me first discuss a case that doesn’t directly apply to you. Say that your husband stops working at 62 and files for his retirement benefit at 62. If he does so, he’ll suffer a permanently reduced retirement benefit.

He can mitigate this reduction, however, when he reaches full retirement age by suspending his retirement benefit and restarting it at 70. Will this Start-Stop-Start strategy maximize your combined lifetime benefits? The answer depends, in part, on his maximum age of life. If you were in this circumstance, only very smart commercial software could tell you whether or not your husband should use this Start-Stop-Start strategy.

But you aren’t in this situation, because, as you say, your husband will keep working until 66. In this case, if he files at 62, he’ll likely lose — until he reaches full retirement age — all his own retirement benefits as well as all the spousal benefits he can provide you through Social Security’s earnings test. In this case, I believe the best option is for you to take your own retirement benefit immediately. At 70, you’ll start collecting your spousal benefit provided your husband files for his retirement benefit at 66. If he does so, he can also immediately suspend it and wait until 70 to collect his own retirement benefit. This will maximize his own retirement benefit as well as your widow’s benefit were he to pass away.

Mary – Atlantic Beach, Fla.: I am currently 65 and will be 66 in December 2015. I retired from my job on June 30, 2015. I want to delay taking my Social Security benefit until age 70 based on all the “education” I have tried to get about when to take benefits. My biggest fear is not dying, but outliving my funds. My husband is deceased. We were married for 38 years. He was collecting disability for about three years before he died at age 60, ten years ago. I was told at the time that I was not eligible for widow’s benefits, because I was under age 60, had no minor children and made too much money at my job. As a result, I never filed for any benefits.

I just finished reading your book, “Get What’s Yours” and am now confused as what to do. My original plan was to apply for widow’s benefit based off my deceased husband’s earnings and delay taking my benefits until I reach age 70. In your book it speaks of deeming, not collecting two benefits at the same time, forever reducing benefits by filing incorrectly or too soon and filing and suspending. What am I supposed to do? I am told by Social Security that my widow’s benefit will be about $1,900 a month, which I could take now, and my personal benefit at age 70 will be about $3200 a month. (Although, I’m not so confident that I could take my widow benefit now based on my earnings.) So my question is, do I apply for my widow benefit this year and do nothing about my benefit? Should I apply for my benefit at 70? I’m very confused and don’t want to make a move until I am crystal clear. Each time I call the Social Security office, I get a different answer, and although they are very nice folks, they often seem as confused and unsure as I am. Not very reassuring. Thanks so much for taking the time to write your book and try to make us all stop and think. There seems to be so much information for married people on different strategies, but not a lot of options for widows.

Larry Kotlikoff: I’m very sorry for your loss.

I appreciate your reading our book. It seems like you got to the right answer, but want it confirmed. You should take your widows benefit and just your widow’s benefit now and your own retirement benefit at 70. There is no deeming in the case of widows benefits. So you won’t be forced to take your retirement benefit as well. File an application that is restricted to getting just your widows benefit. Now depending on how much you do earn this year, you may lose all of this year’s benefits due to the earnings test.

Social Security’s monthly earnings test will permit you to be paid benefits right away, regardless of how much you earned in the first half of the year. Be sure to file your application for widow’s before the end of this month, since there is no retroactivity allowed for reduced benefits.

Janie – Andersonville, Tenn.: My sister in law’s husband passed away and left her an insurance policy. She is on Supplemental Security Income (SSI) and Medicare due to being on dialysis. If she cashes in the life insurance policy can SSI take it from her? Her late husband was also taking Veterans Affairs benefits. Would she lose Social Security widow benefits, if she receives widow benefits from Veterans Affairs?

Larry Kotlikoff: Yes, she will likely lose her SSI as a result of having too many assets once she collects her life insurance funds. Actually, even if she doesn’t cash in the policy, if she honestly reports all her assets, she’ll need to report this one as well even though it’s a life insurance policy. You sister in law will not lose her Social Security widows benefit due to collecting a widow benefit from the Veterans Affairs.

Pamela – Seattle, Wash.: I am a widow and want to retire at age 60. I am 59. I am currently working, but my husband made more money than I over our life time so I thought I would collect his at age 60 along with my retirement with the school district. If it’s not enough, I will have to work longer with the school district. But in order to plan ahead, I need to know how much my husband’s amount would be, but they won’t reveal this amount to me until I turn 60. What is the reasoning behind this? Why is this kept as a deep, dark secret like I’m trying to breach some national security issue? It’s ridiculous. I feel like I’m getting screwed over first by my husband’s premature death and now by the government.

Larry Kotlikoff: I am very sorry about your husband’s passing away.

I agree that it’s absolutely outrageous that Social Security won’t tell you your age-60 widow’s benefit. I would go to a different local office (with your marriage and his death certificate) and insist on speaking to a supervisor. If they won’t tell you what you will receive, write down their names and phone numbers and call your members of Congress. This information is your property. You can’t properly plan your financial future unless you know it. This said, you will want to run some very expert software to decide when to take what. It sounds like you should wait until 62 to take just your own retirement benefit and then take your widows benefit at full retirement age or potentially earlier, depending on whether or not your husband took his own retirement early. If this were the case, the RIB-LIM formula I’ve discussed here would apply and taking your widows benefit before full retirement age will be optimal, because waiting beyond a given point, which occurs before full retirement age, will not lead to higher widow’s benefits once you start taking them.

Ralph – Hortonville, Wis.: Can Social Security give you earning credits of $0 when you file tax returns more than three years late, even though earnings were substantial and Social Security taxes were paid? This happened to me for tax years 2000 and 2001. If so, are there any accepted reasons for which exceptions may be granted? (I still have copies of the tax returns in question.) If not, may I file for a refund of the Social Security taxes paid?

Larry Kotlikoff: Unfortunately, all my answers are unpleasant. First, Social Security can credit your covered earnings at $0, if you pay your Social Security taxes too late. Second, I don’t think there are any exceptions granted. Third, they won’t refund your Social Security tax payments.

Charles – Portland, Ore.: I filed for my Social Security benefit at 69 and eight months. The Social Security Administration backdated my filing by six months and sent me a check for the accrued amount. They also backdated the accrued amount for my daughter who was 17 at the time and had received a monthly check since then until she finished high school this June. This provided a five-digit sum that she will use to defray costs of college. Did I make the right decision? Also, I have 55-year-old spouse. Can she apply off of me for dependent care?

Larry Kotlikoff: It’s hard to say in your case. But it’s possible that the backdating hurt you more than it helped you and your daughter. Your child would have to be under age 16 or disabled in order for your wife to be eligible for child-in-care benefits. Only very precise commercial software can tell you whether you played this exactly right.