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 of Maximizing Your Social Security Benefits,” (co-authored with Paul Solman and Making Sen$e Medicare columnist Phil Moeller) will be published in February by Simon & Schuster.
L. Jones — Fort Worth, Texas: I am divorced and am drawing a very small Social Security check. But I also get $1,064 from work in the federal system and $1,367 from the Marine reserve. Can I change my Social Security to my ex’s Social Security, which will be more than I get? We don’t talk, though. Can I get her Social Security earnings without her consent? She does not want me to get anything. She also gets $450 each month from my divorce settlement.
GOT SOCIAL SECURITY QUESTIONS?
Larry Kotlikoff: Since you have filed for your own retirement benefit already, you can only collect based on your ex’s work record if A) you were married for at least 10 years, B) half of her full retirement benefit exceeds 100 percent of your own full retirement benefit, C) she is 62 or over, and D) she has either already filed for her retirement benefit or you have been divorced for two or more years. Also, unless you paid Social Security taxes on your wages from the government, your federal pension may reduce or eliminate any divorced spousal benefits for which you might otherwise qualify.
What she does or doesn’t want you to get makes no difference. Exes can’t control what their exes collect on their work records. So I’d make sure Social Security knows you have an ex and conditions A through D are met, if that’s indeed the case.
Anonymous: Just some food for thought: I am now 66 years old, female, married, and have worked all my life and am still working. I started collecting my own Social Security the month before I turned 66. It will take 14 years to make up that month of money. Personally, I don’t agree that in any circumstance a person should wait until 70 to collect. If you are working at 66 you are still contributing to Social Security and the money you spend to “relax and enjoy your retirement” is for a very short time — maybe 66 to 75, and then a person slows way down.
What good is the money when you’re too old to enjoy any of it? You will use way less money as you age. I don’t think it’s typically in your best interest to collect early if you are in good health, but I think waiting until 70 doesn’t give you those “prime” years of enjoying some good retirement years.
MORE FROM ASK LARRY
Larry Kotlikoff: I disagree, particularly if you have other funds you can use to get by (including spousal, widow’s, divorcee spousal or divorcee widow’s benefits) up until age 70. Here’s why: We can’t count on dying on time. Hence, we need to plan to live not to our expected age of life, but to our maximum age of life. Because we might. Social Security provides longevity insurance — and very inexpensive and reliable longevity insurance at that.
Ideally, if you have other funds that can tide you over, you want to follow the strategy that maximizes your lifetime benefits. This often, but certainly not always, entails waiting until 70 to take your own retirement benefit. Following the optimal strategy and using other funds to finance your spending as needed before 70 means you can have a higher living standard not just after 70, but also before 70. In this case, following the optimal strategy is simply a matter of financial arbitrage. In other words, you can’t lose in terms of your living standard either before or after age 70.
Anonymous — Lexington, Texas: My husband and I are both going to be 70 in 2015 and are currently receiving Social Security. My question is this: We have an opportunity to sell our rental home with a value of approximately $130,000. Would that affect the amount we currently receive from Social Security?
Larry Kotlikoff: Since you are above full retirement age, your Social Security benefits aren’t affected directly by any source of income, including labor income. Also, since income from the sale of a rental home is not subject to Social Security tax, it would not increase the amount of your Social Security check. Your Social Security benefits are subject to federal income taxation. But unless the $130,000 represents a taxable capital gain, it won’t affect your adjusted gross income on which Social Security benefit taxation is predicated.
Anonymous — New York, N.Y.: My deceased husband never took retirement and his insured amount is very much higher than mine. I will be 64 shortly and want to know if I file on my own (that being about $475) to supplement my income at the allowed yearly amount, will I be allowed to file at 66 on his and get my survivor benefit with no glitch when I am 66?
Larry Kotlikoff: Yes, you should file immediately for your own retirement benefit, but not for your widow’s benefit. Wait until 66 (full retirement age) to collect your widow’s benefit, when it will start at its highest possible value.
Stephen — Wilmer, Ala.: If I am at full retirement age and paid per diem and hourly wages, how does the per diem affect my Social Security?
Larry Kotlikoff: There is no earnings test after you reach full retirement, so earning money by the hour or per diem has no effect on your benefits.
George — Albuquerque, N.M.: I am receiving disability from Social Security. I have been for the past two years. I was born in 1951, and my wife was born in 1953. My benefits are approx $2,300. What options does my wife have to not take her Social Security benefits until later and apply for a percent of my benefits? What restrictions will she have?
Larry Kotlikoff: The best option is likely for your wife to wait until full retirement age and collect just a full spousal benefit on your work record. At 70, she would file for her own retirement benefit. If her own benefit at 70 exceeds her full spousal benefit, she’ll start collecting her own retirement benefit. If not, her check won’t change.
For your part, consider, if you can swing this financially, suspending your own retirement benefit at 66 and starting it up again at a 32 percent larger value (after inflation) at 70. This suggestion assumes you have a pretty high maximum age of life; that’s the highest age to which you possibly could live.
Editor’s Note: Today Larry also presents a correction to a question from Rhoda that appeared in a September 2013 column.
Rhonda — Princeton, Minn.: At 55, I am seven years younger than my husband, who’s 62. His full retirement age is 65 or 66, not sure which. I currently receive Social Security Disability Insurance (SSDI) at nearly my full-retirement-benefit level, which should be when I turn 68. Can my husband start collecting a spousal benefit on my SSDI at his full retirement age, or do we need to wait until my full retirement age when my SSDI converts to retirement benefits?
Larry Kotlikoff: Your husband can collect a reduced spousal benefit if he is 62 or older. Generally, you’d need to be at least 62, but that’s not the case since you are receiving a disability benefit.
But if your husband takes a spousal benefit before he reaches full retirement age, he will be forced to also take his own retirement benefit under a provision called “deeming.” In this case, he’ll get something close to the larger of either his reduced retirement benefit and his reduced spousal benefit. In other words, one benefit will wipe out the other. To be precise, he’ll receive his reduced retirement benefit plus a reduced excess spousal benefit. The excess spousal benefit is the difference between half of your disability benefit and 100 percent of his full retirement benefit. This could easily be a negative number, in which case the excess spousal benefit will be set to zero. Hence, if your husband collects his spousal benefit before full retirement age, he may end up just with a reduced retirement benefit.
The optimal strategy — the one that will maximize his lifetime benefits — is for him to wait until full retirement age, when deeming no longer occurs, file just for his spousal benefit, and then take his own retirement benefit at 70 inclusive of the delayed retirement credits he’ll accrue between full retirement age and 70.