How can Uncle Sam keep our unused Social Security benefits?

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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,” (co-authored with Paul Solman and Making Sen$e Medicare columnist Phil Moeller) will be published in February by Simon & Schuster.

Anonymous — Gig Harbor, Wash.: Here’s a question that’s been eating at me. Why does our government KEEP our unused Social Security after someone’s death rather than paying the unused balance back to the spouse? The government didn’t contribute to our Social Security insurance, so why should they have the right to keep it? I think of all the people who either never drew a dime of it or those who drew but still left an enormous amount.

Larry Kotlikoff: ​Social Security is a longevity insurance pool that pays out to those who live very long from those who die early. If, for example, you make it to 100, others who died young will, in effect, be paying for the extra benefits you’ll receive for living so long. So you too may benefit from this system.


Pose Your Questions to Larry Here

This said, the system is enormously unfair when considered on an actuarial basis, by which I mean on the basis of what people will receive on average. Why, for example, should a spouse who works not a day in his life receive a higher benefit than someone who worked every day of his life? No idea, but that’s exactly what can happen under our system.

Also, why should those who read this column end up receiving higher lifetime benefits than those who don’t? Why is the system designed such that the size of one’s lifetime benefits depends on making exactly the right moves at exactly the right time? The system as currently designed is an absolute scandal.

Anonymous — Jefferson City, Mo.: I started taking my Social Security benefits at age 66, am now 68 and will continue working part-time –about 20 hours/week — as an independent health care contractor, likely until I am 70. Would it be advisable and/or possible to stop my payments now and then restart at age 70 when I likely will be working a bit less if at all? My health is excellent.

Larry Kotlikoff: Yes, absolutely. Your benefits will be up to 16 percent larger after inflation depending on how close you are to having just turned 68.

Michael — Pensacola, Fla.: I am collecting Social Security disability and am thinking about finding a job if I can. I will turn 66 in May. What will happen if I do go to work right now? Do I lose all of what I am getting from Social Security now?

Larry Kotlikoff: Social Security’s earnings test stops the minute you reach full retirement age. So, after May, you can earn as much as you’d like without losing any of your Social Security benefits.

Sheila — Charlotte, N.C.: I will be 66 on Oct. 3 of this year and plan to quit my full-time job on Dec 31. Would I be better off to file for retirement as of Oct. 1 and thus draw both my paycheck and my Social Security for November and December or wait until Jan. 1 to collect Social Security benefits? I make approx $65,000 per year.

Larry Kotlikoff: In my answer, I’m going to assume that you can’t collect spousal, widow, divorcee spousal, or divorcee widower benefits. In other words, I’m going to assume you were never married or were married for less than 10 years before getting divorced. Under these assumptions, your best course of action is to wait until 70 to collect your retirement benefit when it will be 32 percent higher, on an inflation-adjusted basis, than its value if you take it at age 66. If you are taking your benefit earlier than 70, which it sounds like you are, there may be an advantage to ​starting your benefit ​in August or September​​.

As I wrote in this column, there are cases involving those, like you, who lose benefits via the earnings test, who can get a free month’s benefit. I’d ask Social Security to tell you what precisely you’d get and when if you file for your retirement benefit a month or two before full retirement age.

Roy — Memphis, Tenn.: My brother recently passed away at age 53. His wife had passed away five years earlier. Their youngest child was 11 when she passed away. In looking at all of my brother’s documents, we came across the mother’s Social Security annual statement. It stated that the children were eligible for death benefits. Unfortunately, my brother did not know about Social Security death benefits. They will not pay retroactive five years since no application was done. The problem I have is that no one told my brother that he could apply for death benefits with Social Security. Is that something the funeral director should have done or even Social Security?

Larry Kotlikoff: Truly sorry to hear about your brother’s passing. Funeral directors normally do send a notice of death to Social Security, but the Social Security Administration has no way of knowing if there are surviving children who could be eligible for benefits. Lump sum death benefits are small amounts (i.e., $255).

The real question right now is whether your son’s youngest child, who is now 16, is collecting a child survivor benefit to which he or she is eligible until he or she reaches age 18 (or 19 if still in elementary school or high school). The child can collect the larger of either the child survivor benefit based on your brother’s work record or based on your deceased sister-in-law’s work record. The child may also be eligible for up to six months of back pay on your deceased sister-in-law’s work record. If any of your brother’s children are disabled and become disabled before age 22, they can collect child survivor benefits no matter how old they are or become.

Anonymous — Seattle, Wash.: I was married for 39 years and my husband died almost four years ago. I’m going to be 67 in February. If I get married again, can I keep receiving my Social Security widow’s benefits?

Larry Kotlikoff: Very sorry to hear about your husband’s death. Since you are over age 60, if you remarry you can, indeed, collect or continue to collect widow’s benefits based on your former husband’s work record.