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.
Mary – Newport News, Va.: My husband died at 51. I am now 61 and am applying for widow’s benefits. Since he died at a young age his benefits are $1,440 a month. I have been told that at 67 I can draw mine, which is more. Is this correct, and is this the right way to do it?
Larry Kotlikoff: I’m really sorry for your loss. This is not exactly the right way to do it. Assuming that you weren’t earning so much as to lose all your widow’s benefits to the earnings test, you should have filed for your widow’s benefit at 60.
You should file for your widow’s benefit now. Unfortunately, Social Security won’t give you past, unclaimed benefits. You should wait until 70 to collect your own retirement benefit, at which point it will start at its largest possible value. This presumes you have a pretty high maximum age of life (note, I didn’t use the word expected).
Anonymous – Grand Island, N.Y.: I have taken my Social Security at age 66, but I continue to work and pay into the system. When I stop working will my benefits be recalculated?
Larry Kotlikoff: Each year your benefits are recalculated under a provision called the Re-computation of Benefits (technically known as Automatic Earnings Reappraisal Operation).
If you earn enough, your Average Indexed Monthly Earnings (AIME) level, which is based on your 35 highest past indexed annual covered earnings, will increase. Your AIME matters in this case, because your AIME determines your Primary Insurance Amount (PIA), which determines your full retirement benefit. It’s then your full retirement benefit that determines the actual retirement benefit you’ll collect if you take it early or late. Your full retirement benefit also determines the auxiliary benefits that your current spouse, your ex-spouse (as long as you were married to them for 10 or more years) and your young or disabled children (below the age of 22) can collect on your work record.
Julie – Dacono, Colo.: I recently purchased your book “Get What’s Yours” and would appreciate your help in maximizing my Social Security. In late September 2015, I will turn 62 years old and my ex-spouse will turn 64 years old in early October 2015. I am presently working and plan on working until 70 so long as I’m healthy. We got married October of 1971 and divorced in May of 1989. I have never remarried, so I meet the qualifications to collect divorcee spousal benefits.
After I reach my full retirement age (66 years old), will I be able to collect divorcee spousal benefits, continue working full time, and then suspend my own Social Security benefits until I reach age 70? If I’m unable to continue working after I turn 62 years old, can I draw my divorcee spousal benefits and suspend my own Social Security benefits until my full retirement age? If my ex-husband’s Social Security benefits are more than my own Social Security benefits, can I continue collecting his Social Security benefits after I reach my full retirement age and suspend my own benefits until age 70 (in order to get the highest possible retirement benefit)?
GOT SOCIAL SECURITY QUESTIONS?
Larry Kotlikoff: Unfortunately, if you draw spousal benefits on your ex’s work record before you reach full retirement age, you will be deemed to also be filing early for your retirement benefit. In this case, you’ll receive your own reduced retirement benefit plus your reduced excess spousal benefit. If your own full retirement benefit exceeds half of your ex’s full retirement benefit, your excess spousal benefit will be zero. As a result, filing early will potentially permanently eliminate any spousal benefit. Your best strategy is to try to wait until full retirement age, file only for your divorcee spousal benefit and then take your own retirement benefit at 70. This said, if you do file early and do receive an excess spousal benefit, when you do suspend your own retirement benefit at full retirement age, you will continue to collect your reduced excess spousal benefit between full retirement age and age 70.
Mary Ann – Palatine, Ill.: I am a widow and will be 60 in July. My husband of 27 years died in 2000. Can I collect his Social Security, still work, wait for my Social Security to mature and then start collecting mine? If so, is there a maximum amount of money or yearly income allowed as I continue to work?
Larry Kotlikoff: I’m very sorry for your loss. Yes, you can file at age 60 for a reduced widow’s benefit and wait until 70 to collect your own retirement benefit. But you can also file at age 62 for a reduced retirement benefit and take your widow’s benefit at full retirement age. (If your husband collected his retirement benefit before he passed away, you’d likely want to take your widow’s benefit before full retirement age.) Which of these strategies is best can only be determined by some very careful commercial software. The software needs to take careful account of the earnings test. For if you earn too much money, you may lose all your benefits up through full retirement age, regardless of which benefit you take early and which you take later. The maximum amount of money you can earn before the year that you will reach full retirement age changes each year. It’s currently $15,720. But this limit rises annually with the growth in economy-wide average earnings. For every dollar you earn in the years before the year you reach full retirement, you lose 50 cents in benefits for every dollar you earn above this amount (which, again, is now $15,720). In the year you reach full retirement age, you can earn up to $41,880 in the months before your birthday without losing any benefits. If you earn more than this amount over those months, you’ll lose 33 cents on the dollar in benefits received over those months. However, on the day you reach full retirement age the earnings test ends. Also, specific benefits lost to the earnings test are increased starting at full retirement under what’s called the Adjustment of the Reduction Factor (ARF). But this ARF won’t help much if you flip, as you surely will, from the first benefit you take to the second. The reason is the second benefit will exceed the first one you take and that’s the only one you’ll receive. I.e., you can’t receive two benefits at once. And being ARF’d with respect to a benefit you aren’t receiving is of no value.
Anonymous – Milford, CT: I am 61, was married to my ex for 16 years, have been divorced for 15 years and have not remarried. My ex is 66 and made considerably more money during her working years than I did. I want to draw spousal benefits from her figures when I turn 62 until my full retirement age of 66. Do I lose the yearly 8 percent increase to my potential benefits during the time I am drawing spousal benefits?
In your book, “Get What’s Yours,” you seem to imply I can remarry if I’m over 60 and still benefit from my ex’s numbers, but that does not seem to be the case. Is it only for survivor’s benefits?
Larry Kotlikoff: To answer your last question first, it’s yes. You can’t remarry and collect divorcee spousal benefits. But if you remarry after 60, you can collect divorcee widower benefits once your ex passes away.
Now responding to your first question, please check out the discussion about deeming in the book (Chapter 3) and Social Security gotchas (Chapter 25). If you file early for your divorcee spousal benefit, you’ll be deemed to also be filing for your retirement benefit. You’ll end up getting a 25 percent reduced retirement benefit and a reduced excess spousal benefit, which could well be zero. Your optimal strategy—assuming you stay single—is to wait until full retirement age and file only for your divorcee spousal benefit. Then at 70, file for your own retirement benefit. This assumes you have a high maximum age of life.
Carolyn – McMinnville, Ore.: I began receiving Social Security at age 63 in January of 2015. In April, I decided to work part time an extra year. I will end up over the income to receive benefits. I understand that if I get retirement benefits early, then withdraw from receiving benefits before my full retirement age, I must repay what I have already received. Must I write SSA a check now, or when I tell them I want to withdraw? Or do they just keep enough payments to repay the money already received once I retire at age 65?
Larry Kotlikoff: Yes, you would have to write Social Security a check for the amount of all the benefits you’ve received (including any tax withholdings) in order for them to approve a request for withdrawal.
Steve – Morris, Ill.: I am a firefighter in Illinois and plan on retiring around age 52 with 26 and a half years on the job. This will give me 68 percent of my current wage. I have credits for another job and know the Social Security will be reduced when I start getting it. My wife is a nurse. She has a 401(k), but she does not have pension. She has worked for 20 years as a registered nurse and 10 years doing other jobs that collect Social Security. What is going to happen to her Social Security? She is 48, and I am 50 this year. I plan to move to Michigan in 5 years also, and if they tax my pension, do I have some options?
Larry Kotlikoff: The spousal benefit, which your wife may collect on your Social Security work record, will be reduced due to the application of the Windfall Elimination Provision (WEP). The degree to which you will be WEP’d depends on how many years you had of significant covered earnings. Benefits that your wife receives based on her own work record will not be affected by your non-covered pension.