Collect your Social Security as if you may live to 100

Social Security rules are complicated and change often. For the most recent “Ask Larry” columns, check out

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.

Laura — Calif.: I’m single, with no family, and I just turned 62. I am hoping I can find work and that I’m able to work until age 70. According to my estimated benefits, at age 70 I will receive $1,730 a month. I have lived in California most of my life and would prefer to stay, but it does not seem realistic to live on that amount of money. Any advice for increasing benefits? What about the start, stop, start strategy?


Pose Your Questions to Larry Here

Larry Kotlikoff: You can start your benefit now, but it will be reduced relative to your age-66 full retirement benefit by 25 percent​. When you reach age 66 and not a day before, you can suspend your retirement benefit and start it up again at, say, 70. It will be increased from its 25-percent-reduced level by 32 percent (after inflation) when you restart it at 70. Therefore, if your full retirement benefit in today’s dollars is $1,000 per month, your benefit through age 66 will be, again in today’s dollars, $750 per month. Between 66 and 70, it will be zero, and after age 70, it will be $750 per month times 1.32 — or $990 per month.

If you don’t take your retirement benefit early and wait until 70 to collect it, your benefit starting at 70 will be $1,320 per month.

Based on your estimated age-70 benefit amount of $1730, your full retirement benefit appears to be $1,311 per month, or 32 percent lower. And your age-62 benefit appears to be $983 per month, or 25 percent lower than your age-66 benefit. That’s miles lower than the $1,730 per month you can collect at age 70. There is, therefore, a very big incentive to wait until 70 to collect if at all possible.

To quote Bob Dylan, “Tomorrow is a long time.”

If you live to 100, which is increasingly likely for middle class Americans in decent health, you’ll be extremely happy you waited until age 70 to collect.

Note that if you take your retirement benefit early and suspend it at full retirement age or, indeed, if you take it at full retirement age, but immediately suspend it, you’ll have the option to take suspended benefits in a lump sum, but your retirement benefit thereafter will continue at the level it was at the time of suspension.

I’m assuming, as you suggested, that you were never married or were married for less than 10 years so you can’t collect benefits on an ex-spouse. If you could, the optimal strategy could be very different depending on your ex’s age, if he’s alive, whether and when he died, whether he collected his own retirement benefit early, and how much he earned.

My best advice is to look hard for a job, file and suspend at 66, keep working until 70, and restart your retirement benefit at 70 at its highest possible value.

Nathan — Penn.: I am age 66 and I am not sure I should take my Social Security now.
My wife is age 55 and we file jointly. I earn over $150,000 a year and she earns $50,000 a year. I own my own successful business. Should I wait until age 70? Will I lose my Social Security benefit to taxes?

Larry Kotlikoff: The best option is surely for you to wait until you are 70 to collect your retirement benefit and for your wife to file for just her spousal benefit when she reaches full retirement age and for her own retirement benefit at age 70.

John — Calif.: I retired at age 57 (I am now 61) with a State of California CalPERS lifetime defined-benefit pension. I also qualify for Social Security benefits at a reduced amount due to the Windfall Elimination Provision (WEP) under Social Security law. I have 22 years of significant earning under Social Security and do not plan on working in the future so no earnings will be accrued toward Social Security benefits.

My question is this: I am aware that under Social Security, my primary insurance amount (PIA) at 66 is either reduced if I take benefits early or increased if I wait past full retirement age. But what about my wife’s benefits? She is seven years younger than I am. She has no work history so will qualify for spousal/dependent or survivor Social Security benefits only under my earnings. If I wait to collect my benefits, does the basis for calculating her benefits go up as well, or are they set at my PIA at normal retirement age no matter when I start collecting my benefits?

Larry Kotlikoff: Your wife’s spousal benefit will be based on your PIA (your full retirement benefit), which will be reduced due to the Windfall Elimination Provision. But since you have 22 years of significant earnings it won’t be reduced by that much.

Her spousal benefit will not be reduced if you take your Social Security retirement benefit early because, again, her spousal benefit is based not on your actual benefit but on your PIA.

A very precise commercial benefit calculator can tell you precisely what you and she will receive taking into account your years of significant earnings. ​

Note that if you haven’t yet begun taking your non-covered pension, the Windfall Elimination Provision won’t apply until you start taking it.

Now, if you should die, your wife’s widow benefit may not be affected by the Windfall Elimination Provision. The Windfall Elimination Provision is not used to calculate your PIA after you die. On the other hand, if you take your own retirement benefit early, the actual retirement benefit you receive, which is based on your PIA inclusive of the Windfall Elimination Provision (WEP), will enter into the special and complicated RIB-LIM formula that is used to calculate widow(er) benefits of spouses as well as divorced spouses (who were married for 10-plus years) of decedent workers who filed for early retirement benefits.

This RIB-LIM formula, which I’ve written about in the past, can make your wife’s widows benefit depend on when precisely you take your early retirement benefit as well as the value of your early retirement benefit.

Given that your wife is seven years younger than you, you must carefully consider the widows benefit she will lose if you take your retirement benefit before age 70. Again, the right calculator can show you what she will get based on different dates of your death.

I’m assuming your wife will not collect a pension from non-covered earnings. If she did, the Government Pension Offset Provision would reduce her spousal as well as her widows benefit by two-thirds of her non-covered pension.

Donna — R.I.: My husband died four years ago at age 62. I am 60 and working full time with an annual income of approximately $100,000. I hope to continue working for another five years. My husband never applied for Social Security. His income was less than mine. Am I eligible for any benefits from his Social Security or should I just wait for mine when I retire?

Larry Kotlikoff: Very sorry for your loss. You are eligible to collect a widows benefit starting at age 60, but it will be wiped out by Social Security’s earnings test given how much you earn. Your best strategy appears to be to wait until full retirement age, when the earnings test goes away. ​At that point you should take just your widows benefit while letting your own retirement benefit continue to grow through age 70 thanks to Social Security’s delayed retirement credits. At 70 you’ll take your own retirement benefit. If your age-70 retirement benefit exceeds you widows benefit, you’ll receive it. Otherwise, you’ll continue to collect your widows benefit. The reason is that once you start collecting your retirement and widows benefit at the same time, you receive the larger of the two benefits.

Note, and this is really, really important: You do not want to file for and suspend your retirement benefit at full retirement age. You simply want to file for your widows benefit and wait until 70 to file for your retirement benefit. If you do file for your retirement benefit at full retirement age and suspend its collection, you’ll fall into one of Social Security’s nasty gotcha traps. You’ll receive only your excess widows benefit, not your full widows benefit between full retirement age and 70. Your excess widows benefit is the difference between your widows benefit and your own retirement benefit. If this difference is negative, your excess widows benefit will be set to zero. So you stand the chance of wiping out or greatly reducing your widows benefit for all the months between your full retirement age and age 70 just because you mistakenly filed for and suspended your retirement benefit.