By Larry Kotlikoff
Maximizing spousal and survivor benefits is a matter of careful timing. Photo by Siri Stafford/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
Maureen C. — Red Bluff, Calif.: I receive my Social Security benefits and a small amount from my deceased husband’s Social Security benefits. If I remarry, what happens to my benefits?
Larry Kotlikoff: If you remarry after age 60, you can continue to receive survivor benefits on your late husband’s work record. And, after one year, you’ll be eligible to collect a spousal benefit based on your new husband’s work record. But you’ll not be able to collect both benefits at the same time. You’ll receive the larger of the two.
Stephanie T. — Elko, Nev.: My spouse passed away four years ago. I am still working. Would I be entitled to his Social Security?
Larry Kotlikoff: Paul and I, it goes without saying, are very sorry for your loss. If you were married nine months or more, you can collect survivor benefits based on your deceased spouse’s earnings record. You can collect reduced survivor benefits as early as age 60. But when you should take survivor benefits and when you should take your own retirement benefit depends on a number of factors, particularly how much you earned and are earning and how much your late spouse earned.
Marilyn C. — Fairfield, Calif: I am 63. My husband died suddenly in March 2012. I applied for his Social Security benefits and was told if I waited until 65, the amount would be a good deal more than if I took the money as soon as I could. I worked 20 hours a week so I needed the money, but now I can increase to full time. Can I stop receiving his Social Security and wait until 65 to restart at higher level?
Larry Kotlikoff: You can’t suspend your retirement benefit until full retirement age, which is now age 66. If you have already begun taking survivor benefits, you’re stuck. You can’t suspend them regardless of age. But you can withdraw them, by repaying everything you received up until now, because it’s been less than one year since you applied for them.
However, you may not want to do this. Any survivor benefits you lose due to the earnings test will be made up by giving you larger benefits starting at full retirement age.
I trust you are just taking your survivor benefit and planning to wait until 70 to take your own retirement benefit. Taking both at once is not likely to be optimal. If you were the higher earner, taking your survivor benefit first and then your own retirement benefit at 70 would likely be best. But if you were the lower earner, it would, most likely, be better for you to take your retirement benefit now (after you repay your survivor benefits), and then at full retirement age (66 in your case), start taking your unreduced survivor benefit. I’d recommend plugging your and your late husband’s work records into commercially available software to know which collection strategy is best.
Will J. — Franklin, Ky.: They way I read the Social Security literature, a spouse can only collect half of the older spouse’s benefits based on the older spouse’s age of full benefit — not half of the older spouse’s age-70 benefit. So for example, if the wife is 65 and the husband is 70, the wife must wait until 66 to draw the amount the now 71-year-old husband would have drawn at age 66. You say otherwise to Arthur from St. Croix. Can you clarify?
Larry Kotlikoff: You are correct, Will. I don’t believe I would have said otherwise to Arthur or that Jerry Lutz, the former Social Security technical expert who kindly double checks each week’s answers, would have missed such a gross mistake. Indeed, I’ve been going to great lengths in this column to tell you and others that the way Social Security’s website describes spousal benefits as equal to half of one’s spouse’s benefits is terribly misleading.
Let’s count the ways it’s misleading in the case of Sue and Sam, who are married. Sue is attempting to get spousal benefits off of Sam’s earnings history.
MORE FROM LARRY KOTLIKOFF:
First, Sue can’t collect a spousal benefit at all until Sam files for his retirement benefit, and Sam can’t file for his retirement benefit until he’s 62. Sam doesn’t have to be taking his retirement benefit to get Sue spousal benefits. He just has to have filed for it. After full retirement age, he can file for his retirement benefit and suspend its collection.
But if Sam files for his retirement benefit after age 62 but before full retirement, he can’t suspend and he’ll have to take his retirement benefit. Because he is taking it before full retirement age, it will be permanently reduced. Yes, he can suspend it at full retirement age and start it up again sometime before or at age 70 at a permanently higher value, but it will always be lower than had he never been forced to take benefits early.
Second, if Sue is in a position to take a spousal benefit because Sam has filed, Sue’s spousal benefit will be based on Sam’s full retirement benefit, not the actual benefit he’s receiving or will receive. The actual benefit Sam receives may be lower than his full retirement benefit due to his having filed early. It could also be higher than his full retirement benefit due to his having waited beyond full retirement age to start collecting. This is the point you are making.
Third, if Sue, herself, has filed for a retirement benefit, whether or not she has suspended it, and if Sam has filed for his retirement benefit, Sue’s spousal benefit will be calculated as her excess spousal benefit, which is half of Sam’s full retirement benefit less 100 percent of Sue’s full retirement benefit (inclusive of any delayed retirement credits Sue accumulates by waiting to collect her own retirement benefit beyond her own full retirement age). If this amount is negative, the excess spousal benefit will be set to zero. Furthermore, if Sue is below full retirement age when she starts collecting her excess spousal benefit, which, again, could be zero, her excess spousal benefit will be hit by the early spousal benefit reduction factor.
And fourth, if Sue hasn’t filed for her retirement benefit, but Sam has filed, and Sue takes her spousal benefit early (before full retirement age), Sue will be deemed to be filing for her retirement benefit too. She’ll be kicked into excess spousal benefit world and get a spousal benefit that is definitely less than half of Sam’s full retirement benefit, and may be zero.
The only way that Sue can actually receive a spousal benefit equal to half of Sam’s full retirement benefit is if Sue waits until at least full retirement age to file just for her spousal benefit and if, when Sue does this, Sam has already filed for his retirement benefit. Furthermore, once Sue reaches age 70, she’ll want to file for her own retirement benefit because her total benefit can only increase if she files. But once she files, her spousal benefit will automatically be recalculated as her excess spousal benefit.
Bottom line, there are at most four years during which Sue can collect a spousal benefit equal to half of Sam’s. Yet Social Security has this statement on its website about spousal benefits:
The spousal benefit can be as much as half of the worker’s “primary insurance amount,” depending on the spouse’s age at retirement. If the spouse begins receiving benefits before “normal (or full) retirement age,” the spouse will receive a reduced benefit.
So, as I’ve written in a recent column, you never want to trust what you read on Social Security’s websites. What’s written is never literally wrong. But it’s far too often incomplete.
Christine G. — Katy, Texas: I receive court-ordered benefits awarded to me as a former spouse. Will my Social Security benefits be reduced?
Larry Kotlikoff: If you are referring to alimony payments, they will not affect your own Social Security retirement benefits. Nor will they affect the spousal or survivor benefits you can receive on your ex’s earnings record, provided you were married for 10 or more years.
Melissa W. — Minneapolis, Minn.: My husband and I are planning on a long retirement as we are in good health. He will retire in March 2014 at the age 64. His Social Security benefit would be about $1,700 per month, but we will not need to begin his benefit as long as I am working.
I plan to retire in December 2015, when I will be 66 and my Social Security benefit will be about $2,300 per month. We are wondering if the best move would be to begin taking my husband’s Social Security benefit (which will be $2,000 at that time) at that point, so that we can wait several more years — hopefully until I reach 70 — before I take my benefit? We do have 401k accounts and are trying to delay accessing these as long as possible so that they have more time to grow.
Larry Kotlikoff: Glad you wrote, Melissa. If you wait until full retirement age to collect just your spousal benefit based on your husband’s earnings record, it will equal half of his full retirement benefit. You suggest it will equal 100 percent of his benefit. It won’t!
Furthermore, what you can collect as a spouse is, as discussed above, based on your husband’s full retirement benefit, not based on what he actually collects as a retirement benefit. And, as discussed above, your husband has to have filed for you to collect a spousal benefit, whether, as discussed above, it ends up being a full benefit or an excess spousal benefit that you receive.
All this said, your best move is likely to be for your husband to file for his retirement benefit after reaching full retirement age, but suspend its collection and then start up his retirement benefit again at 70. If he does this, you can then, once you reach full retirement age, apply just for a spousal benefit. And then at age 70, you can file for your own retirement benefit when it will start at its largest possible value.
Or, if you are older than your husband and your full retirement benefit is higher than his, it might be slightly better if your husband applies for a retirement benefit immediately upon your reaching 66 (i.e., before he reaches full retirement age), permitting you to collect just your spousal benefit. You can then get a full four years of spousal benefits before switching to your own benefit at 70, and your husband can suspend his own retirement benefit at 66 and start it up again at 70.
This entry is cross-posted on the Rundown — NewsHour’s blog of news and insight.