When should I take my Social Security?

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.

Jan: How do I know when to take my Social Security? A financial adviser told me it would take until I was 80 to make up for the benefits lost if I wait until 70 to start collecting. The adviser said I should start taking my benefits at 65 or 66, but continue working until age 70. How can I find out if this is true? He used a calculator. I was married for 20 years, and my late husband died when I was 50. I was told nothing of taking widow’s benefits, but I did collect for his child until she turned 18. I worked part time and do not know the earnings limit. I remarried at age 57 and have been married five years. He turned 61 in January 2016, and I turned 62 this fall. We are so confused. I was told he could apply under me when I turn 65 or 66 and defer for a year until he turns 66. Then we both collect and work until age 70. Does that sound correct?

Larry Kotlikoff: You can’t collect on your former husband unless you a) get divorced or b) your current husband dies. Assuming neither of these happen, your best bet may be for you to both wait until you are 70 to collect your own retirement benefits at their highest possible values. There are calculators that are free and others that are sold primarily to financial planners. There are also calculators provided by Social Security. But they don’t deal properly with family situations. They don’t necessarily get things right even if you are single. In particular, they produce the wrong benefit estimates for everyone under 60 and for those still working. (You can get under the hood with the Social Security’s calculator and fix up their zero future inflation and zero future wage growth assumptions and specify your exact future earnings. But you’ll still just end up with something that doesn’t tell you how to maximize your family’s lifetime benefits.)

​Financial planners have an incentive to have people take their benefits early so they can invest the benefits for them and earn fees. The good ones use software that’s not biased in this direction. The bad ones choose software that produces recommendations that lead to this “advice.” One thing is clear: If you live to 100, your financial planner won’t be sending you a monthly check to compensate you for taking lower benefits than you would otherwise have received had you waited until 70 to collect your own retirement benefit.

This said, every case is different and it is not always optimal to wait until 70 to collect your retirement benefit. In some cases, you can lose tens of thousands of dollars doing this. But the decision as to when to collect should not be made based on a break even calculation that ignores the fact that Social Security is providing longevity insurance. You can’t evaluate an insurance policy based on a break even analysis. That’s true whether it’s a homeowner’s policy, an auto policy, a healthcare policy, or in the case of Social Security, a longevity policy.

Mary — Sedona, Ariz.: I’ll be 65 in December and was married for 37 years. We are divorced now. I had to take my Ohio Public Employees Retirement System pension early at a reduced amount, but now I am working again (outside of the OPERS system) and really need to maximize my Social Security benefits. My ex plans to work until 70, as do I. What’s my best move?

Larry Kotlikoff: You can file at 66 for just a divorced spousal benefit and wait until 70 take your own retirement benefit. You’ll receive your own retirement benefit plus your excess divorced spousal benefit if it’s positive. Unfortunately, because your Ohio Public Employees Retirement System pension is not from Social Security covered employment, whatever divorced spousal benefit and divorced excess spousal benefit you receive will be reduced if not totally wiped out by the Government Pension Offset provision, which reduces these benefits by two thirds of your Ohio Public Employees Retirement System pension. The Government Pension Offset also applies to widow(er) or divorced widow(er) benefits, so when your ex passes away, you’ll want to file for a divorced widow benefit or a divorced excess widow benefit depending on whether or not you are taking your own retirement benefit. Your divorced excess widow benefit could be small or zero if your own retirement benefit exceeds your divorced widow benefit. Again, your divorced widow or divorced excess widow benefits will be hit by the Government Pension Offset.

Furthermore, your own retirement benefit will be subject to the Windfall Elimination Provision, which will reduce your benefit. How much it will be reduced depends on how many years you earned above Social Security’s substantial earnings level, which was $22,050 in 2016. The Windfall Elimination Provision is a less generous benefit formula.

Your ex, by the way, can collect divorced spousal and divorced widow benefits (full or excess depending on whether or not he has filed for his own retirement benefit). When you pass away, the formula for your own full retirement benefit or primary insurance amount on which his divorced widow or divorced excess widow benefit is computed is not subject to the Windfall Elimination Provision. That is, Social Security stops hitting you with the Windfall Elimination Provision once you die. Lovely system, isn’t it?

Gilberto — Miami, Fla.: My wife and I are both 61 years old. I earned significantly more than my wife. Can my wife take early retirement at 62 based on her own record and then switch to spousal benefits once I retire at 66 (full retirement) without getting the spousal benefit reduced?

Larry Kotlikoff: ​Given your wife’s age and the new Social Security law passed in November, she will be forced to take her spousal benefit whenever she takes her own retirement benefit when she becomes eligible to take a spousal benefit. (She will become eligible to for a spousal benefit when you file for your own retirement benefit.) You wife won’t receive her full spousal benefit. Instead, she will receive her excess spousal benefit, which will be zero if her own full retirement benefit exceeds half of your full retirement benefit. But if you wait until full retirement age, to the extent your wife’s excess spousal benefit positive, it won’t be reduced or will be reduced by very little.

You need to use extremely careful software to sort out what’s best. If your wife’s excess spousal benefit is indeed positive, her lifetime benefits could be higher if she just waits until her full retirement age to take her own retirement benefit as well as her excess spousal benefit. That way her own retirement benefit won’t be permanently reduced. It may also be the best option to have you both wait until 70 to collect your own retirement benefits. Since the excess spousal benefit is reduced by the delayed retirement credits one accumulates, waiting until 70 could wipe out your wife’s excess spousal benefit, but it may still be the best strategy, because both of your retirement benefits will be considerably higher. Or it may be best for you and your wife to both start collecting your retirement benefits plus any excess spousal benefit she can collect between full retirement age and 70. This will give you a higher retirement benefit and will start her spousal benefit earlier than if you waited until 70. I say spousal benefit, because if she files for her retirement benefit after full retirement age and has a positive excess spousal benefit, the two together form her full spousal benefit (equal to half of your full retirement benefit). Yet another option is for you to wait until 70 to collect your retirement benefit and have your wife start collecting her own retirement benefit at her full retirement age. Then at 70, when you start collecting your retirement benefit, she would start receiving her excess spousal benefit. If it’s positive, she will have picked up several years of her own retirement benefit, which might otherwise have been lost to no purpose. This would certainly be the case if her retirement benefit at 70 was less than her full spousal benefit.

In short, your case is truly incredibly complex. You earned a lot more than your wife, but she may still have earned enough to make her excess spousal benefit zero no matter when she takes it. If so, she would probably be best off if she waited until 70 to take her own retirement benefit at its highest value. If her excess spousal benefit is positive no matter when she takes it, then having her take her own retirement benefit at full retirement age and having you wait until 70 or close to 70 to collect your largest possible retirement benefit (at which point she’ll pick up her excess spousal benefit) may be best.

Also, bear in mind, that by waiting until 70 to collect your own retirement benefit you are maximizing your wife’s widow’s benefit or excess widow’s benefit when you pass away.

Thomas – Gainesville, Fla.: I am 60 this year (divorced) and my girlfriend is 55 (widowed). Would we be penalized with our Social Security benefits if we got married, or would we receive more if we stayed single?

Larry Kotlikoff: Your girlfriend is eligible for a widow’s benefits starting as early as 60 (the benefit will be reduced if taken early) if she remains single or gets married after she is 60. If you are eligible for a divorced excess spousal benefit (unlikely if you had fairly high earnings or similar earnings to your ex), getting remarried will eliminate them. On the other hand, either you or your girlfriend might be able to collect an excess spousal benefit on the other’s work record if your earnings have been very different in size and if the low earner didn’t earn too much. Software can help here, but there is no program that I know of, including my own company’s, that considers marriage or, for that matter, divorce as an optimization strategy.

Maria – Medford, Mass.: I worked for the city of Cambridge for 10 years part time. They have a pension plan, but I left my job in January 2015 before becoming fully vested in it. I only received my contributions back, which I rolled over into my IRA. I have never received a pension and never will. In spite of having submitted all the proper information to Social Security last January, they just WEP’d me. They say I have been receiving a pension since January 2015, and they are reducing my monthly benefit and fining me $ 1,500 for “overpayment.” I went to the Social Security office, and they made me file a reconsideration. To date, it has not been inputted in the system, and I am told I have to wait. But in the meantime, they are going to take some of my money away because of this nonexistent pension. I called a couple of times to check on the status, but I am not getting any answers. What can I do?

Larry Kotlikoff: This sounds like another Social Security horror story. You should not be hit by the Windfall Elimination Provision if you aren’t receiving a pension or didn’t receive a lump sum payment based on a contribution by the city of Cambridge to a retirement plan. ​I would call my members of Congress and ask them to intervene. Best of luck.

Barbara – Conn.: I am 62, and my husband is 67. Under the new law, can I file and suspend and have my husband begin receiving spousal benefits? I am the higher wage earner. If we can’t do this, should he start taking Social Security so that I can receive the spousal benefit? Do we have only 180 days to do this from November 2, 2015?

Larry Kotlikoff: You can’t file and suspend before you reach full retirement age, and under the new law, you can’t provide benefits to anyone on a suspended retirement benefit unless the suspension occurs before April 30. Your best bet may be for you both to wait until 70 to collect your own retirement benefits. Yes, you could file now for your retirement benefit, and your husband could collect a full spousal benefit until 70 and then take his own retirement benefit. But this will mean a permanently lower retirement benefit for you and a permanently lower widower benefit for him if you pass before he does. But what’s best will depend on exactly how much you both earned in absolute terms and relative to each other. The right software can figure out what’s optimal in terms of maximizing your joint lifetime benefits in light of your maximum ages of life and your past covered earnings histories.

Bob: Having read your book on Social Security, my wife and I were planning to use the file and suspend strategy. The new law seems to be a bit confusing. Recently I turned 66, and my wife turned 63. With this new law can we still apply the strategy when she turns 66 or would another strategy be more prudent? We were looking to collect our own benefits at age 70. Or do we fall into the six-month category? When I contacted the Social Security Administration, I was informed that I cannot file and suspend until my wife turns 66 years old, which did not make sense. Is this true?

Larry Kotlikoff: You’ll need to file and suspend before April 30, 2016, ​in order for your wife to be able to collect just a spousal benefit when she turns 66. Doing this comes at the risk of her passing away in the near future. In this case, you will have lost your ability to collect a full widower benefit for a few years prior to reaching age 70 when you’d take your own retirement benefit. Instead, since you would have already filed, you’d collect only your excess widower benefit even though your own retirement benefit was in suspension. (What I just wrote presumes your own age-70 retirement benefit would exceed your full widower benefit.)

Patty: I am a widow who just turned 62, and I am working full time. My plan was to start collecting on my husband’s Social Security at age 65, and I would file and suspend my benefit until age 70 to maximize my benefit. With the new budget bill changes, will I still be able to do that? Should I file now even though I will lose most of my widow’s benefit to the annual earnings test and because I am not yet full retirement age? Please help me figure this out. I am very worried.

Larry Kotlikoff: If your own retirement benefit at age 70 exceeds your unreduced widow’s benefit, you should file now for your widow’s benefit and simply wait until 70 to collect your own retirement benefit. If you were to suspend it at full retirement age, you will end up getting a reduced excess widow’s benefit rather than a reduced full widow’s benefit and only harm yourself.