Senior Woman Paying Bills. digitalskillet/iStock 360 via Getty Images. related words: Social Security, Medicare

How the Social Security system rips off poor people

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

Larry Kotlikoff’s 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 now feature “Ask Larry” every Monday. Find a complete list of his columns here. We are determined to continue it until the queries stop or we run through the particular problems of all 78 million Baby Boomers, whichever comes first. Let us know your Social Security questions. Kotlikoff’s state-of-the-art retirement software is available here, for free, in its “basic” version.

Question: Please understand I am long-term unemployed and simply have no resources to purchase your software program. I am 62 and divorced from my long-term (over 10 year) marriage to a much older man (and higher earner) who is still living. I have worked steadily all my life but always at low-wage jobs so I’m probably at the lowest rung of benefits. But I am desperate for any income. With my savings nearly gone, I am contemplating early Social Security claiming as no other income seems possible. If I do claim early Social Security, does this mean I can never benefit from claiming against my former husband’s Social Security? I know effectively I would have zeroed out benefits if I claimed under his benefits as well as mine. But if I just claim only mine early am I forever precluded from benefiting under his? I am desperate and the people at Social Security won’t give me a straight answer!

Larry Kotlikoff: ​I’m terribly sorry to tell you this, but if you file for your retirement benefit early, you’ll be forced to file for your spousal benefit early as well since your ex is 62. The second you file for your retirement benefit, you plunge into what I call “excess benefit hell,” in which you can never ever again collect one benefit by itself while letting the other one grow​. Instead, your divorced spousal or divorced widow’s benefit (when your ex dies) becomes your excess spousal or excess widow’s benefit.

Your excess spousal benefit is calculated as 50 percent of your ex’s primary insurance amount, less 100 percent of your PIA, augmented by any delayed retirement credits.
Your excess widow’s benefit is calculated as your widow’s benefit less your own retirement benefit, reduced by any early retirement reduction factors and augmented by any delayed retirement credits. If either excess benefit is negative, it’s set to zero.

Your excess spousal benefit is likely to be negative, so it will be set to zero.

If your excess spousal benefit is positive, Social Security will force you to take it, at a reduced level, immediately. This is called deeming. ​If ​it’s zero (because it was set from a negative value to zero), there is no deeming of the excess spousal benefit. So, you could, in theory, receive a non-reduced excess spousal benefit starting at your full retirement age were your ex to increase, via additional work, his PIA to the point that half of it exceeded 100 percent of your PIA.

Furthermore, if you file now or anytime before full retirement age for your spousal benefit, you’ll be forced to file for your retirement benefit, plunging you into excess spousal benefit hell.


Pose Your Questions to Larry Here

Bottom line? Filing for a retirement benefit now will ​likely ​wipe out your spousal benefit forever. You will have the option at full retirement age to suspend your retirement benefit and start it up again at 70 at a 32 percent, inflation-adjusted ​higher ​value. But since you have landed in excess spousal benefit hell, you’re stuck there forever. And even during the period when your retirement benefit is suspended, your spousal benefit will be calculated as your excess spousal benefit, which, again, will likely be zero.

If you could make it until full retirement age without filing for any benefits (assuming your ex is still alive),​​you could file just for your spousal benefit and then let your own retirement benefit grow. But since you are strapped for cash, you don’t have this option.

This is just one of the very many ways that Social Security disadvantages low-income people. On the surface, the system’s benefits seem to be calculated in a highly progressive manner. They are. But then there are all these catch-22s that hurt the poor. None of Social Security’s ardent liberal supporters realize this. If they did, they’d also realize the system needs to be scrapped and replaced by one that’s truly progressive and that people can understand.

It’s one thing to screw the poor in the light of day. It’s another to screw them via monstrously complex provisions that only the most devious bureaucrats, surely overly focused on their own personal situations, could devise.

The good news, if you want to call it that, is that once your ex dies, your own benefit will surely become your widow’s benefit. In other words, your excess widow’s benefit won’t be zero. So you can look forward to a bump up in your check — ​it ​could be more than a doubling — when he passes away.

However, if your ex takes or has taken his own retirement benefit early, your benefit will be calculated based on the RIB-LIM formula. The formula depends on when you take your widow’s benefit and when he took his retirement benefit. If he dies when you are within a couple ​years ​​​​of your own full retirement age, you’ll end up getting a total monthly check that’s potentially as much as 17.5 percent smaller because your ex took his retirement benefit early.

Why should you, a poor divorced widow, be forced to have a 17.5 percent lower living standard for the rest of your life just because your ex decided to take his own retirement benefit early — an ex you may not have seen in decades?

I’m extremely angry at how our government treats people like you. It’s despicable. And no member of Congress nor the president understands it because the bureaucrats who set this all up decades ago — probably old upper-income white guys — made it so complex that our leaders don’t ever ​have the time to really understand what’s going on.

WL — Columbia, S.C.: My wife applied and is receiving her reduced benefit at 62 from last year. I filed a restricted application for spousal benefits on her at year-end when I turned 66. I have been paying for my Medicare Part B since turning 65 in 2012 out of my pocket. I filed/suspended for my benefits after 66 as well, requesting to keep my delayed retirement credits and cost-of-living adjustments intact while I plan to work until 70.

Social Security says it will deduct from these spousal benefits for my Medicare Part B payment. I did not request this change of payment method and I thought they could only deduct from my own benefit and not from the spousal benefit based on my wife. Can I ask them to put it back to paying out of my pocket as I worry about your Item 29 of your Social Security secrets article.

Larry Kotlikoff: You should not have filed for your retirement benefit and suspended it. That was a huge mistake. You need to immediately withdraw, not suspend, your retirement benefit. If you don’t, you won’t get a full spousal benefit. You’ll get an excess spousal benefit, which will likely be zero. You have a year from the time you filed and suspended to withdraw your retirement benefit application. I hope you are still within that year. If the Social Security Administration deducts Medicare Part B premiums from your spousal benefit after you’ve withdrawn your retirement benefit, that’s okay. Secret #29 won’t apply to you in this case.

Question: I’ve been told because of my military service I could increase my Social Security. I didn’t retire from the military, but between active duty in the National Guard, I probably have 16 or 17 “good” years. If there is something to this, how do I approach the Social Security Administration, if I was one of the boomers forced into taking early retirement after being laid off and not being able to find a job?

Larry Kotlikoff: As I say to anyone who is or was in the military, I thank you for your service to me, my family and our country. The military has been covered by Social Security since 1957. But from 1957 through 1977, you are credited with $300 in additional earnings for each calendar quarter in which you received active duty basic pay. And from 1978 through 2001, for every $300 ​in active duty basic pay, you are credited with an additional $100 in earnings up to a maximum of $1,200 a year. ​

H​owever, the Social Security Administration cannot automatically add deemed military wages for the years 1957-1967. Active duty wages were covered during those years, and the earnings are posted to the veteran’s record, but the $300 per quarter extra credit is not. One of the questions on Social Security applications addresses this issue, and if a person alleges active duty during that period, proof of active duty (usually a DD-214) is requested. If a veteran is unable to submit proof, the Social Security Administration can request a detailed earnings search, called scouting, in order to identify wages reported by the military branches.

Michelle: I am 52 years old and a full-time homemaker. My husband and I have been married for 33 years and have seven children. So far, he has been the sole source of income for our family; my work has all been in the home. Will I be entitled to any Social Security at all ?

Larry Kotlikoff: Once your husband files for his retirement benefit, you’ll be able to collect a spouse with child-in-care benefit if you have a child under age 16 or a child who was disabled before age 22. You can collect a spousal benefit as early as age 62, a widow’s benefit if your husband predeceases you and you are at least 60 or a mother’s benefit if your husband dies while at least one of your children is under age 16 or one of your children is disabled (having become disabled before age 22). ​

If you take a spousal benefit before full retirement age, it will be permanently reduced. If you take your widow’s benefit before full retirement age, it may be less than the benefit your husband was collecting if he files for his retirement benefit early. But if your husband files for his retirement benefit early and then passes away, there will be a point before full retirement age, when you will have no further incentive to wait to collect your widow’s benefit.

When your husband files for his retirement benefit, your children under 18 (or 19 if they are still in elementary or secondary school) can collect child benefits.

There is, however, a family benefit maximum that limits the amount that you and your child can jointly collect. The limit is between 50 percent and 87 percent of your husband’s full retirement benefit. If your husband dies, you and your children can jointly collect, at most, between 150 percent and 187 percent of your husband’s full retirement benefit.

The spousal and child benefits are half of your husband’s full retirement benefit before any limitation imposed by the family benefit maximum. When your husband dies, the child survivor benefit is 75 percent of your husband’s full retirement benefit. And your widow’s benefit can (depending on when you take it and when your husband took his retirement benefit or, if he didn’t take his retirement benefit, his age when he died) can range from 71.5 percent of his full retirement benefit to 132 percent of his full retirement benefit.

Glad you asked?

Question: I am a 64-year-old single man. I plan on working until 70. Should I wait until 70 to apply for Social Security or at age 66, file and suspend Social Security? When I go to the Social Security website and estimate my benefit, the result at age 66 is that I would receive approximately $2,510 and at age 70, I would receive approximately $3,404. So which option should I choose, or does it really matter?

Larry Kotlikoff: Giving up four years of benefits in order to get 32 percent higher permanent benefits is well worth it if you have a high maximum age of life, let’s say, 100.

​So whether you wait until 70 or file and suspend at age 66 and then restart your benefits at age 70, you’ll be getting the same benefits at age 70.

But, there’s a very strong reason for you to file and suspend at 66 rather than simply wait: you can, at any point after suspending your benefit, ask Social Security to hand back, in a lump sum, all your suspended benefits. They will do so, but only if you have suspended your retirement benefit. If you’ve simply not taken your benefit, they will, at most, pay you six months of retirement benefits in arrears.

Now if you do suspend, your benefit check from the date of suspension onward will just equal your retirement benefit as of the date of the suspension. Furthermore, the lump sum check will be reduced by the amount of extra benefits from the delayed retirement credit that you received after you reactivated your retirement benefit.

Question: I took Social Security at 62 and am now 70. My spouse is retired but has not filed for Social Security. She is considering filing for spousal benefits when she turns 66 this year. Her Social Security even at 66 will be higher than mine even though her salary was less than mine by $10,000 to $15,000. Would it be advisable for her to apply for spousal benefits then or have her wait until 70 to receive her full benefits? Extra income would be helpful but not crucial.

Larry Kotlikoff: Glad you asked. She should file just for her spousal benefit (using the restricted application form) and wait until 70 to collect her own retirement benefit, when it will start at its highest value. This way she’ll receive not half of your current, reduced (because you took benefits early) benefit, but half of something larger — namely your full retirement benefit. And she’ll receive this for four years. So this is free money; Take it and enjoy!