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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.
Question — Waterloo, Iowa: I was married for over 10 years to a high earner. I remarried and was married for over 10 years to another man. I divorced my second husband when I was 64, but ended up remarrying him at 65. Can I still collect on my first husband’s Social Security at my full retirement next year? Both are alive.
Larry Kotlikoff: No and yes. You can’t be married and collect a divorced spousal benefit on your ex. But when your ex dies, you can collect a widow benefit on his work record since you remarried after age 60. You can’t, however, collect more than one benefit at a time. In your case, there are five different benefits you’ll need, over time, to juggle: your retirement benefit, you divorced spousal benefit, your spousal benefit, your widow benefit (when your current spouse dies), and your divorced widow benefit (when your ex dies).
Carol — Kingsland, Texas: I received two benefit letters from Social Security. I have reached aged 65 and have been changed from disability benefits to retirement benefits. I have also been getting widows benefits. My retirement benefit is one amount and my widows benefit is another. Will I still be getting both amounts but in just one check each month?
Also, Social Security said they had made an error and I will get more back on widows benefits then what I was previously getting. Are they required to make up the difference to me in what I should have been getting originally?
Larry Kotlikoff: I’m surprised Social Security has converted you from your disability benefit to your retirement benefit before you reached age 66, your full retirement age. But, in any case, you may want to withdraw your retirement benefit so you just receive your widows benefit. That way you can defer collecting your retirement benefit until age 70, when it may, thanks to Social Security’s delayed retirement credits, exceed your widows benefit.
Social Security doesn’t really give you two benefits at once. It basically gives you the larger of the two. But it goes out of its way to convince you that you are receiving both benefits at once when you aren’t. In your case, your widows benefit, which I’ll call X, exceeds your retirement benefit, which I’ll call Y. Social Security is giving you X, and only X, because X exceeds Y. But it’s telling you that you are receiving Y plus your widows benefit, which Social Security has redefined to be X minus Y.
If you ask Social Security whether you are getting a full widows benefit, they will be forced to admit that you aren’t. You are just getting your excess widows benefit, namely X minus Y. And your total benefit is, again, just X, namely just your full retirement benefit. Now why is it that Social Security goes out of its way to mislead you into thinking you are getting your retirement benefit, when you really are not?
Social Security doesn’t want people to understand that they and their employers can contribute 12.4 percent of their pay in FICA taxes to Social Security for their own retirement benefits and end up getting not a penny of retirement benefits. This is fundamentally unfair; indeed, it’s indecent. It boils my blood to write about it.
Anyway, let me calm down and get back to your question. If you don’t do anything, I expect nothing will happen to your total check. You will still get the same amount. You will still not collect your retirement benefit and you will still be lied to and told you are collecting your retirement benefit. The only real way to collect both your widows and retirement benefits is to do so at different times. If your age-70 retirement benefit, which should be roughly 32 percent higher than it is now, exceeds your full widows benefit, the way to maximize your lifetime Social Security benefits is, again, to 1) you withdraw your retirement benefit, 2) you collect your full widows benefit until 70, and 3) file at 70 for your retirement benefit.
Raymundo — Marietta, Ga.: I am 66, already at full retirement age. I want to file for benefits and immediately suspend my benefits so that my spouse can file for 50 percent spousal benefits under my account. My spouse turns 66 on in April 2015. Can we file three months before then so she can start receiving benefits on her birthday month?
Larry Kotlikoff: Yes, you can do this.
Question — Danbury, Conn.: My ex-wife wants to file for Social Security at 62 (deeming problem aside), but I’ll be paying her alimony until she is 66. Simple question: does alimony count as income such that it will reduce her benefit by $1 for every $2 above the $15,000+ limit? It seems like it should, but I wasn’t able to find it explicitly stated anywhere.
Larry Kotlikoff: No, alimony payments don’t count under the earnings test. They do count for purposes of determining whether your income is high enough such that your Social Security benefits are subject to federal and, in some states, state income taxation.
Question — New York, N.Y.: I am single, 66 and will turn 67 in March. I haven’t yet started collecting Social Security. I read that at one point, one could elect to take Social Security and then, before turning 70, return all the money to get the annual increase (which in this case would be 8 percent each subsequent year until 70). Is that still the case? I just spoke with a Social Security representative over the phone, but she seemed very confused on the point and kept talking about “suspending” payments. Hope you can clarify.
Larry Kotlikoff: You have one year from the time you elect to file for your retirement benefit to withdrawal your election. So if you were 69 and filed, you could, at 70, withdraw, pay back all the benefits you received and then file for your benefit from scratch.
Why do so? Well, you don’t need to pay interest on the repayment, so you get an interest-free loan on a year’s benefits. But this is not a big enough deal to go through the aggravation. You do have the option, right now, to file for your retirement benefit and suspend its collection and then wait until 70 to start it up again. The advantage of doing this is that if, at any point between now and 70, you need an infusion of cash, you can withdraw your suspension and Social Security will pay you all your suspended benefits in one lump sum. But your retirement benefit from that point on will be calculated at the level it was at the time you suspended.
If you can collect a widows benefit or a divorced spousal benefit, your better play is not to file and collect one of those two benefits starting immediately and then wait until 70 to file for your own retirement benefit. Everyone needs to be very careful about filing for their retirement benefit since doing so precludes their collecting either a spousal, a widow(er), a divorced spousal, a child-in-care spousal, or a divorced widow(er) benefit by itself while letting their own retirement benefit grow and starting it later. If you do file for your retirement benefit, any of these benefits will be transformed from full into “excess benefits.” You will, as I like to put it, have landed in excess benefit hell.
Question — Sarasota, Fla.: I was married to my ex-husband for three years but lived with him for 10 years before that. We lived in Alaska and were divorced in 1987. He has been on a disability for about 15 years. Can I collect on his benefits through a common law marriage arrangement?
Larry Kotlikoff: No, you need to be married for 10 years to the day to collect on your ex.
Laurence Kotlikoff is a William Fairfield Warren Professor at Boston University, a Professor of Economics at Boston University, a Fellow of the American Academy of Arts and Sciences, a Fellow of the Econometric Society, a Research Associate of the National Bureau of Economic Research, President of Economic Security Planning, Inc., a company specializing in financial planning software, and the Director of the Fiscal Analysis Center. Kotlikoff's columns and blogs have appeared in The New York Times, The Wall Street Journal, The Financial Times, the Boston Globe, Bloomberg, Forbes, Vox, The Economist, Yahoo.com, Huffington Post and other major publications.
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