Why we need to tell Social Security who our families are

Social Security rules are complicated and change often. For the most recent “Ask Larry” columns, check out maximizemysocialsecurity.com/ask-larry.

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: If my wife is collecting a spousal benefit based on a former husband’s earnings (not her own), may I as a spouse, file for a spousal benefit on her account or would I have to wait until she is collecting based on her own earnings? We are both at full retirement age.

Larry Kotlikoff: Well, gee, this is a good question since, if I have the facts right, it seems like your wife is illegally collecting a benefit on her former husband. Once you get remarried, you can no longer collect a divorced spousal benefit.

But perhaps her former ex died? If so, she’d be collecting a divorced widow’s benefit. And if you two got married after she turned 60, she’d be collecting this benefit legally.

Social Security knows nothing about our families unless we tell them. So if you or your spouse gets remarried and doesn’t tell them, they may think you’re still single and keep sending the checks. If your wife’s ex didn’t die and she’s been collecting, she probably needs to repay her divorced spousal benefits to Social Security starting from the time you two got married.


Pose Your Questions to Larry Here

I hate to bear bad news, but there you go.

The answer to your specific question is yes and no. Your wife needs to file for her retirement benefit in order for you to file for a spousal benefit. But she doesn’t need to collect her retirement benefit. In other words, if she is above full retirement age and below age 70, she can file for her retirement benefit and then suspend its collection.

Question: First, I am not a baby boomer, but my question is important.

I will be 74 in May 2014 and took Social Security retirement at 66 in 2006. I was divorced from my spouse in August 2006 after 21 years of marriage. My current Social Security retirement benefit in 2014 is $755. My spouse’s benefit at the time was about $200 a month more. Can I fix this? I receive no income from his higher benefit and I may be eligible. At the time, I was told there was nothing more coming to me. Is it too late? Your previous columns have indicated what I have always thought — Social Security people often give out inaccurate and untimely information. You have shown the complexities of the Social Security law, which is very helpful.

Larry Kotlikoff: I’d triple check that they actually know to whom you were married. Also, if your ex has now passed away, you will be eligible for a divorced widow’s benefit, not a divorced spousal benefit (which is lower). So check if your ex is still alive and then head over to the local Social Security office and see if they owe you anything.

Linda T.: I am 60 and collecting $2,400 in Social Security disability. My husband is nine months older than I am and retired. I was the higher wage earner. We estimate his Social Security payments, based on his earnings, to be $1,100 a month (plus cost-of-living adjustment increases) if taken at age 62 or $1,500 a month if taken at 66.

How does he let the Social Security Administration know he wants to defer his claim on his own earnings until he is 66 and file a claim against mine at 62? My understanding is that he would receive a combination of his and mine at 62 that, in effect, pays him $1,200 a month. I understand that since I receive disability payments, my younger age is not a factor. The calculations would also be based on my full monthly payments, which are equivalent to age-66 benefits, when one is collecting disability.

Do I have this all straight? Thank you!

Larry Kotlikoff: Your husband can’t do what you suggest. He cannot apply just for a spousal benefit. If he does, he’ll be deemed to also be filing for his retirement benefit. And his own retirement benefit will likely exceed his spousal benefit, in which case he’ll receive it, not the spousal benefit. In other words, Social Security pays you the larger of two benefits if you try to take two benefits at once. (This is not strictly true, but it’s a close enough approximation for your case.)

The rule for non-disabled spouses is that if spouse A files for his retirement benefit before full retirement age and spouse B has already filed for her retirement benefit, spouse A is deemed to be also filing for his spousal benefit. In your case, you aren’t formally collecting a retirement benefit, but for purposes of deeming, you are treated as if you were collecting a retirement benefit.

No one can collect a spousal benefit by itself before full retirement age, and if one files for one’s retirement benefit early, even if one isn’t deemed to be filing for a spousal benefit (because one’s spouse hasn’t yet filed for a retirement benefit), the gig is still up. Just the fact of having filed for a retirement benefit prevents one from ever collecting a spousal benefit by itself in the future. This is true even if the retirement benefit filer suspends his retirement benefit starting at full retirement age and starts it up again, say, at 70.

What’s best for you two? If you can swing it in terms of your cash flow and your maximum ages of life are pretty high (you need to plan to live to your maximum ages because you might), this is likely your best set of moves:

A. Your husband should wait until he reaches full retirement age and then file just for his spousal benefit.

B. When you reach full retirement age, you should suspend your retirement benefit (to which your disability benefit will automatically convert).

C. When each of you reaches age 70, you should both start (restart in your case) your retirement benefits. They will begin at their largest possible values.

Question: I am a self-employed male, age 65. I have never earned much, usually less than $10,000 a year. However, my income is quite flexible; I could earn much more. If my Social Security is based on my best years of income, would it be worthwhile to earn more in these last years before I start to collect my benefits? I don’t intend to start until I’m 70 and I have a family history of longevity.

Larry Kotlikoff: Very good question. The answer is a big yes! I just ran your case through my company’s Maximize My Social Security software. I assumed you earned $10,000 per year, in today’s dollars, from age 20 on, but that you would earn $40,000 per year from now through age 70 (you’d retire the day you hit 70). With that increase in income, your lifetime benefits rise from $280,263 to $325,878. That’s a 16 percent increase. Your annual retirement benefit, measured in today’s dollars, would rise from $13,087 to $15,217.

The extra Social Security payroll taxes you and your employer would need to pay over the next four years on the $40,000 would total $19,840. But your lifetime benefits would rise by $45,615. So you would clear over $25,000 in extra Social Security benefits net of extra Social Security taxes. If you have a spouse or young or disabled children who can collect benefits on your earnings record, the gain would be even larger compared to the extra taxes. Moreover, if you die, your spouse and qualifying children will receive 16 percent higher widow and survivor child benefits.

Question: What is the best way to determine my wife’s Social Security benefit? I am 70 and drawing benefits and she is 56. We are both retired.

Larry Kotlikoff: You can go online and retrieve her earnings record and then paste it into a software program that can calculate not just what she’ll collect if she starts collecting at a certain date, but also when it is best for her to start collecting.

Joanne: I am a widow. I will be 65 this year. Until July 2013, I was working full time but am now working part time. Would I be able to collect my Social Security starting at 65 and then switch to my spousal benefit when I reach 66? Would my late husband’s continue to accrue in the meantime so that I can collect the full retirement benefit?

Larry Kotlikoff: You can collect your retirement benefit starting now and your widow benefit starting at full retirement age (66 in your case). Or you can start collecting your widow’s benefit and let your retirement benefit grow through age 70. Only first-rate software can tell you which strategy is best.

Since you are still working, you may lose some benefits (whichever you take) due to the earnings test, which is operational up to the day you reach full retirement age. But any benefits you lose via the earnings test ​are made up by receiving higher benefits after reaching full retirement age — thanks to what’s called the adjustment of the reduction factor.

On the other hand, if you take your retirement benefit starting now, and lose some retirement benefits due to the earnings test and then switch to your widow’s benefit at 66, you will, at this point, get only your widow’s benefit. The adjustment of the reduction factor, which will raise your retirement benefit, won’t be able to undo your loss of retirement benefits due to the earnings test because you won’t be taking this higher retirement benefit. Instead, you’ll be taking your even larger widow’s benefit.