Protecting your spouse’s Social Security when cancer cuts your time short

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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: I am currently 62 and have been collecting Social Security disability since September 2010. My wife turned 62 in October of 2010. My life expectancy is likely a year or less now after a long battle with cancer, certainly no more than two. I was the higher wage earner. One of cancer’s nemeses is not being able to put everything together in a timely manner.

I only had the vague impression that the longer my wife waited to file, the higher the benefit for her. Now my thinking is this: she should have filed for a spousal disability benefit at 62. Then when I die, she would file (at full retirement age of 66) for survivor benefits. Water under the bridge, but we now plan to file ASAP even just a few months short of her 66th birthday for the spousal disability and proceed later with survivor benefits as planned. Just want to check my reasoning with you. Thanks for your great column.

Larry Kotlikoff: My heart goes out to you and your wife. You are doing what so many other heroic people in your situation do, namely spending their remaining time making sure their survivors will be in the best financial shape possible.


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It’s not clear that you made any mistake in not having your wife file for a spousal benefit at 62. And having her file for her spousal benefit before reaching full retirement age may be a huge mistake. If she waits until full retirement age, she can collect just her spousal benefit and let her own retirement benefit grow. At 70, she can take it inclusive of her delayed retirement credits — at a 32 percent, inflation-adjusted, permanently higher level.

Once you pass away, she can immediately apply for a survivor benefit and then wait until 70 to collect the larger of either her own retirement benefit or her widow’s benefit. Depending on your and her past earnings histories, her age-70 retirement benefit may exceed her widow’s benefit.

Were she to file right now (before full retirement age) for her spousal benefit, she would be deemed to also be filing for her retirement benefit. This would plunge her into “excess benefit hell” in which she would never be able to collect one benefit (either her spousal benefit starting at full retirement age or her widow’s benefit) by itself while letting her own retirement benefit grow.

Had she, for example, filed at 62 for her spousal benefit, she would have been forced to take her retirement benefit as well. She would have then received her reduced retirement benefit plus her reduced excess spousal benefit, which would surely have been zero. (The excess spousal benefit, before being reduced for taking it early, is half of your primary insurance amount less 100 percent of her PIA. This difference is set to zero if it’s negative. And given the progressivity of the formula for determining the PIA, the difference would surely have been negative.)

So, if I’m right, had she filed early for a spousal benefit, she would have only ended up with a permanently reduced retirement benefit. Plus, had she filed early, when you pass away she would have received not her full widow’s benefit (before any reduction due to taking it before 66), but just her excess widow’s benefit.

This amount too could be very small or zero. Furthermore, had she filed for her spousal benefit early, been deemed (forced to) file for her retirement benefit too, been plunged instantly into excess benefit hell, and then suspended her retirement benefit upon reaching full retirement age, she would collect only her very small (potentially zero) excess widow’s benefit between full retirement age and 70.

Yes, at 70, she could, under this suspension scenario, restart her retirement benefit at a 32 percent larger value than its value at the time of suspension. But its value at the time of suspension would be 1.32 times her full retirement benefit — reduced because she was forced to take it early.

Moreover, if her excess widow’s benefit were positive before and after suspending her retirement benefit, the suspending would produce lower benefits between full retirement age and 70 in exchange for no higher benefits after age 70.

Bottom line? Do not have her file for her spousal benefits before reaching full retirement age unless she had really low Social Security-covered earnings during her working career. At full retirement age, have her file just for her spousal benefit and, when you pass away, have her file immediately just for her widow’s benefit. She’ll then get that widow’s benefit through age 70, at which point she’ll collect the larger of either her own retirement benefit, augmented by the delayed retirement credit, or her widow’s benefit. (This amounts to the sum of her delayed retirement credit-augmented retirement benefit plus her excess widow’s benefit).

Steve: I am 64 and my wife is 55. She has been the major wage earner in our 24-year marriage. After doing a little reading, she discovered that I should wait until I am 66 to file for my Social Security benefits, and that she should wait until she is 70 to apply for hers. Is this information accurate? I feel crummy about her having to work so hard and for so long to file for Social Security, and, who knows? I may be gone by the time she is able to retire. Is there a better way for us?

Larry Kotlikoff: I think your wife is providing very bad advice. A little reading in this area is a dangerous thing because if you are reading anything on the Social Security Administration’s website, you can easily read half-truths. Also, many people writing about Social Security benefits aren’t qualified to do so. I have all my answers in this column checked by Jerry Lutz, a former and brilliant long-time technical expert with the SSA. I feel confident that what I tell you and others is, indeed, correct.

I recommend you wait until 70 to collect your highest possible retirement benefit and leave your wife in a position to collect the highest possible widow’s benefit when you die. I recommend ​your wife file just for her spousal benefit at full retirement age (and not a second sooner so as to avoid “excess benefit hell,” which I describe above). And I recommend your wife file for her own highest possible retirement benefit at 70.

If you pass away in the near term, your wife should either file for her retirement benefit before reaching full retirement age and then at full retirement age, file for her widow’s benefit or file just for her widow’s benefit early (although not necessarily as early as possible) and then at 70 file for her retirement benefit. Which option is best is a question that inexpensive and accurate software can answer in less than a half a second.

Note: The following question has multiple parts, so I broke it up for easier reading, with each part in bold.

Dear Larry, here’s some background for you: my wife and I are both 66 and fully retired. I was the higher earner, maxing out on my Social Security benefit projection. My wife took her Social Security benefit early at age 62. We both recognize this was a mistake that affected opportunities to maximize our joint benefits.

We have hopefully put some strategies in place to allow to us to adjust. I have deferred taking the benefit on my record until some later date (possibly age 70) to grow the benefit 8 percent each year I defer. However, I did a file and restrict/suspend on my record when I turned 66 (in September 2013), and then I filed to start collecting spousal benefits on my wife’s record at that time.

​You surely did not file for your retirement benefit and suspend its collection and also file for your spousal benefit when you reached 66. Had you done so, you would have been given your excess spousal benefit, which would surely have been zero. You surely filed just for your spousal benefit. This is very different from filing and suspending your retirement benefit and filing for your spousal benefit.

I’m emphasizing the distinction, not for you, but for other readers who can make the tragic mistake of mistakenly filing and suspending for their retirement benefit when they are trying to collect a spousal benefit, rather than provide one. Making this mistake then plunges them into “excess benefit hell.”

Social Security can easily trap people into making such mistakes that will cost them tens of thousands of dollars over their lifetimes. I’m not saying that was the intent of its architects (although they surely had to have been aware of this potential), but that’s the impact. And being plunged into excess benefit hell is perhaps the biggest trap.

So since my wife took an early benefit at age 62, when she files for a spousal benefit on my record, it will not be 50 percent of my benefit. What will be her eligible percentage?

​Because your wife plunged into excess benefit hell the nanosecond she filed for her own retirement benefit, she lost her ability to collect a full spousal benefit starting at full retirement age. By “collecting a full spousal benefit,” I mean collecting a spousal benefit just by itself, while letting her own retirement benefit continue to grow.

Your wife also, in that same nanosecond, forever lost the ability to collect a widow’s benefit just by itself. So, were you to die today, she wouldn’t be able to start collecting just her full widow’s benefit while suspending her own retirement benefit and letting it grow through age 70. During this period, she’d collect just her excess widow’s benefit. At 70, she’d collect her retirement benefit plus her excess widow’s benefit. Her retirement benefit would be augmented by 32 percent due to the delayed retirement credits, but her excess widow’s benefit would be reduced by exactly the same amount.

Hence, if at 70, her excess widow’s benefit is still positive, this strategy of suspending her benefit would simply mean lower benefits (potentially a lot lower) for four years and no higher benefits after age 70 than she’d otherwise have received. So, if you should die and she should become eligible for a widow’s benefit, she should check using highly accurate software before she suspends her benefit.

So, yes, the strategy you chose was, to put it nicely, sub-optimal. Because you did not file for your retirement benefit and then suspend it when you filed just for your spousal benefit, your wife wasn’t deemed to be filing for her spousal benefit when she went early to collect her own retirement benefit. But as soon as she does so file, she’ll just get her excess spousal benefit, which if not zero, will likely be very small.

​When will she be able to apply for this benefit?

When you are 70 and file for your retirement benefit, she can file for a spousal benefit, but, again, it will be an excess spousal benefit, which will likely be small, if not zero.

Do I have to stop taking the spousal benefit on her record and file for benefits on my record in order for her to collect spousal benefits on my record? I’ve spoken with Social Security agents and confirmed that my benefit will continue to grow and is unaffected by me taking spousal benefits on my wife’s record.

​Yes, for her to collect a spousal benefit — actually, as indicated, an excess spousal benefit — you will need to file now for your retirement benefit. But if you file and suspend your retirement benefit, you won’t enable her to collect anything more. The only thing you’ll do is join her in excess spousal benefit hell and see your full spousal benefit become your excess spousal benefit, which also will surely be zero.

Now for the possibly good news. Your wife can suspend her retirement benefit and start it up again at age 70 at a 32 percent higher value after inflation. Then when you die, she’ll flip onto her widow’s benefit, which will be as large as possible because you will have waited to collect your retirement benefit.

However, it would not make sense for her to suspend her retirement benefit if her excess spousal benefit were actually positive and large enough so as to remain positive when she restarted her retirement benefit at 70. In this case, she’d again get something very small for four years and nothing extra in total after age 70. So she’d end up losing money for four years to no advantage.

What if her excess spousal benefit were positive now, but would be zero after 70? (For you Social Security aficionados, this can happen because the excess spousal benefit is recomputed only after you restart your retirement benefit. And, her excess spousal benefit is computed as half of your Primary Insurance Amount less 100 percent of her PIA, augmented by any delayed retirement credits she accrues by suspending her benefits.) In this case, suspending would let her get her presumably small excess spousal benefits now and a higher total check (consisting just of her retirement benefit) after age 70. This would make suspending worthwhile if her excess spousal benefit were quite small.

Careful software can sort out exactly what she should do at this point.

While I plan on deferring taking my benefit, I’ve looked at break-even points using various ages to start collecting. It would seem that when deferring a benefit start-time from age 66 to 70, the break-even point is at age 81?

The break-even idea is inappropriate. Social Security is providing longevity insurance. You wouldn’t consider breakeven in buying homeowner’s or auto or health insurance. You’d look at the worst case scenario — your house burns down, you total your car, and you get a very expensive illness. Here, the worst case scenario is that you live to your maximum age of life without having enough savings. (Read more about breakeven in the second question of this column.)

My guess is that highly precise software will find that the best thing to do is for you to wait until 70 to collect your own retirement benefit and for your wife to suspend her retirement benefit and start it up again at 70 at a permanently higher value. But you need to check with Social Security maximization software.