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Ask Larry: Is Suspend-and-Collect a Flawed Plan?

Social Security expert Larry Kotlikoff answers readers’ questions covering issues from retirement, medicare and more.

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 week.

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. As for software for which his company charges, we will not link to it in future. A number of readers have complained. We were trying to be transparent, not trying to endorse anything.

Grace — Phoenix: I am two years younger than my husband, and I am the higher earner; his benefit will be close to half of mine. This is our plan. Please let me know if it is flawed. He collects at 66. When I turn 66, he suspends his benefit and collects half of mine. When he turns 70, he goes back to his. Would this two-year suspension for him be worthwhile? Also, if I die, he could collect survivor benefits on me. If he dies, I get nothing since I am the higher earner, right?

Larry Kotlikoff: There are actually three strategies to consider here. The first is for your husband to file and suspend when you reach full retirement age, or 66 in your case, permitting you to collect spousal benefits between 66 and 70. Under this scenario, you’d both apply for your retirement benefit at age 70.

The second strategy is for you to start collecting your retirement benefit when your husband reaches age 66 and then suspend its collection when you reach full retirement age. Your husband would file just for his spousal benefit. When each of you reaches 70, you’d collect your retirement benefit, which in your case would mean restarting it.

The third strategy is the one you mentioned, except you forgot to indicate that you will need to file and suspend your retirement benefit at full retirement age and then start your retirement benefit at 70.

Renee Snell — Milwaukie, Ore.: Technically, government would have no position in denying the same benefits to couples based upon sex. In the event that the Supreme Court finds same-sex marriage legal, what would be the overall impact to our Social Security system during the height of the baby boomer retirement years?

Larry Kotlikoff: If the Supreme Court justices judged gay marriage to be legal under federal law, as they most certainly should, this will cost a pretty penny. Say, 5 percent of current and prospective retirees are a) gay, b) coupled, and c) getting married. Perhaps half of them may qualify for spousal benefits. But there are also survivor benefits that are significant. We’d have to ask the Social Security Administration to figure out a dollar estimate, but it would be a significant extra burden on Social Security, which is already 31 percent underfunded according to table B IV 6 of the Social Security’s 2012 Trustees’ Report.

Christina Kortz — Santa Fe, N.M.: I am 63, and my ex-husband, to whom I was married for more than 10 years ago, passed away a few years ago. I remarried at 59 but am about to get a divorce. I am currently unemployed. Can I collect on my first husband’s benefits, and if so, will it be a percentage since I am not yet of full retirement age?

Larry Kotlikoff: You can collect survivor benefits based on your first husband’s earnings record. But the survivor benefit will be reduced because you are taking it before age 66, which is your full retirement age.

But if you wait until full retirement age to take your survivor benefit, it will equal 100 percent of what your husband was receiving as a retirement benefit when he died, with an adjustment for inflation. If he was not receiving a retirement benefit when he died, you’ll get his full retirement benefit if he died below full retirement age or his full retirement benefit adjusted for the Delayed Retirement Credit if he died after full retirement age.

You have two strategies to consider: You take your own retirement benefit now and take a non-reduced survivor benefit starting at 66. Or, you take your survivor benefit either starting immediately or at age 66, but you take your own retirement benefit at 70.

Frank — Newburgh, N.Y.: My friend has been married to the same man for more than 50 years, separated most of that time but never divorced. Her husband receives a pension and Social Security. Is my friend entitled to any of that? She gets a small Social Security check for time she put in working, but his is quite substantial. Shouldn’t she be getting part of his?

Larry Kotlikoff: She is entitled to a spousal benefit based on his earnings record, but it might have been wiped out by her own retirement benefit. Had she waited until full retirement age, she could have collected her spousal benefit for four years and then collected her maximum retirement benefit starting at age 70. It’s possible the Social Security Administration doesn’t know she is married and isn’t giving her the spousal benefit she’s owed.

Lynn Ann Robinson — Orinda, Calif.: I just read your Social Security story but am still not understanding one thing. I am divorced, just turned 66 and started getting half of my ex-husband’s Social Security benefit because it was bigger than what I could get from my own earnings. When I turn 70, can I file again to receive more Social Security benefits from my own earnings in addition to half of my ex-husband’s, or is it an either/or choice?

Larry Kotlikoff: If you applied just for your spousal benefit — for example, if you filed a restricted application, you can get your own retirement benefit starting at 70, inclusive of four years of Delayed Retirement Credits. If you applied for both, consider repaying everything you received and then applying just for your spousal benefit and waiting until age 70 for your retirement benefit. You have one year to repay and reapply.

George — Escondido, Calif.: I am 69 and my spouse is 72. I receive the higher Social Security check. If I die before my spouse, will my spouse automatically receive my higher Social Security benefit? Will my spouse have to file for this change or will it be automatic?

Larry Kotlikoff: Yes and yes. I believe she will need to let them know you have died and make sure they provide her with a survivor benefit equal to the check you were receiving.

Kipp Inglis — Lodi, Wis.: I am turning 62 later this month, have been unemployed for three years, and am in the process of getting a divorce after 20 years of marriage. My husband is the same age and still works as a federal employee under the Federal Employees Retirement System (FERS).

Am I allowed to collect on my early, decreased benefits and then later, file for the spousal benefit? I presume I cannot collect on the spousal benefit until he files for his Social Security benefits? Will I just get the higher of the two or is there a different formula? If I make an appointment with the Social Security Administration, are they allowed to advise me on the best way to proceed?

Larry Kotlikoff: If your ex is over age 62, and you apply for your retirement benefit early, you’ll be forced to also apply for your spousal benefit. What he does and when makes no difference whatsoever to what you can do. So your presumption is wrong.

Your best strategy is likely to try to wait until full retirement age to collect just the spousal benefit so that it won’t be reduced. Then, at age 70, you can apply for your retirement benefit, which may result in an even larger monthly check.

Editor’s Note: In an earlier version of this post, there were many references to Larry Kotlikoff’s software program that sells for $40 as the way to answer the specifics of their question. That answer triggered discussion and criticism. NewsHour removed these references and here is Paul Solman’s response:

“Larry is just being honest. He answers every question that comes in — in the order they’re sent to him — promptly and for free. But he can’t run people’s numbers himself. His program allows them to do it themselves. I have been the one to insist that we print the price tag so that people don’t go to his site and discover the cost as a surprise.”

This entry is cross-posted on the Rundown — NewsHour’s blog of news and insight. Follow Paul on Twitter.

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