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 to Maxing Out Your Social Security Benefits,” (co-authored with Paul Solman and Making Sen$e Medicare columnist Phil Moeller) was published in February by Simon & Schuster.
Below, Larry explains the file-and-suspend and spousal benefit strategy to Paul, which got Paul and his wife an extra $50,000 in benefits.
Anonymous — Sante Fe, N.M.: A retired military friend of mine brought to my attention that I may be due “special extra earnings” for active duty for training and inactive duty service in the armed forces reserves. I served in both of those capacities from March 1980 through July 1984 then went to inactive reserve status until Nov. 1986 when I received an honorable discharge.
I found some information on the Social Security Administration website but wanted to know if you are familiar with this. I have all of my military pay vouchers and W-2s and have compared them to my SSA earnings records and they are in agreement with the W-2s.
GOT SOCIAL SECURITY QUESTIONS?
However, I do not see any extra added income to those years to apply any “extra credit.” The SSA webpage indicates that for every $300 of military pay earned, you will be credited with an additional $100 in earnings up to $1,200 a year. What I don’t know is how to tell if I have been given these “extra credits” in my current benefit. The SSA website states that “From 1968 through 2001, you don’t need to do anything to receive these extra credits. The credits were automatically added to your record.” I’d like to be sure of this as I don’t see evidence in my SSA earnings record that shows me how this has been added to my benefit.
Another thing that makes me think that I have not been given this credit is that when I applied for Social Security online, I was never given the opportunity to insert any of my military service info. I called the SSA and spoke to someone about this. Unfortunately, it was after I started receiving my Social Security benefit, which was also after my retired military friend told me about the extra credits. The SSA representative told me the reason I didn’t get prompted by the online application for military service is because it is invoked based on the person’s age. He said I am too young to have served in Korea or WWII. This, to me, appears to be a flaw in the application process because that doesn’t account then for armed forces reserves for the period from 1968 through 2001 talked about on their website.
I started receiving my Social Security benefit last October after I turned 62. I do have an appointment with a local Social Security office to discuss this issue. I plan to take my W-2s and military records to this meeting but want to be prepared and ask the right questions to insure I get the extra credits that the SSA says I am eligible to receive.
Larry Kotlikoff: I have heard of this. What you need to do is go over your earnings record with the folks at the Social Security Administration. If they haven’t credited you for the extra earnings and should have, they will. In that case, they will make up the lost benefits and pay benefits at a higher rate going forward.
Just to clarify, SSA retirement applications ask if the applicant had active military service prior to 1968 because deemed military wage credits are automatically added after that. For service prior to 1968, people need to provide proof of their active duty (e.g. form DD-214) to get the credits. Mistakes can occur, but I’d be very surprised if you aren’t already receiving full credit for your service.
Amy — Boulder, Colo.: Can I fix a Social Security filing mistake that I made? I’m assuming not, but want to double check. I filed under my own name at full retirement age (FRA). When my husband, the bigger earner, reached FRA, he filed and suspended. And then I filed for my share of his Social Security. Now, eight months later, we realize that the best configuration would be for him to take his share of my Social Security until he reaches age 70, rather than taking no Social Security money until he reaches age 70. However, I am currently getting half of his suspended Social Security and not my own. Is there any way I can switch back to taking my own Social Security, so that he can then file to get his share of my Social Security until age 70?
You fell smack dab into one of Social Security’s worst gotchas. Filing for your retirement benefit lands you in excess benefit hell in which you can’t collect a spousal, divorcee spousal, widow(er), or divorcee widow(er) benefit by itself. Only one of you should have filed at full retirement age to let the other file, at his or her full retirement age, just for a spousal benefit. You have one year to withdraw (not suspend) your retirement benefit and start from scratch. Hence, your husband can repay and replay if I’m interpreting the eight months correctly. He’d have to repay all of his own retirement benefits PLUS the excess spousal benefit you received on his work record. So there is, indeed, a way in which you can do what you want. But it will be a hit in terms of your short-run cash flows.
Under this scenario, your husband will, as you indicate, file a restricted application for spousal benefits only. He’ll be able to collect six months of spousal benefits retroactively. These retroactive spousal benefits may well offset the excess spousal benefits that you would have to repay, so I would encourage you to contact the Social Security Administration right away.
Lesley — Forest Park, Ill: I may have already made one mistake, but even though I was aware of the spousal benefit, our situation does not fit most profiles. I am 66 and retired in Dec. 2014. My husband, the higher wage-earner, is only 60 and doesn’t plan to retire until 67 (health permitting). I did not choose the spousal benefit because half of his was less than mine. My thinking was that I won’t touch my rollover 401(k) or other investment savings until I am 70, which by my thought process, would grow bigger than Social Security. Did I blow it and what is the best move now?
Larry Kotlikoff: Spouse A (you) can’t collect a spousal benefit (either a full or excess spousal benefit) until Spouse B (your husband) files for a retirement benefit. But no one can file for a retirement benefit before age 62. So in December, you were not able to file for a spousal benefit. Since you are within a year of having filed for your own retirement benefit, you have the option of withdrawing (not suspending) your retirement benefit by repaying all the benefits you’ve received, gross of any Medicare Part B premiums that were subtracted from your check, and starting over with a clean slate. You can only withdraw within a year of filing for your retirement benefit. You are within the year. So let’s consider what’s optimal for you to do in terms of maxing out your lifetime benefits knowing that you have this option.
Your own earnings record, while lower than your husband’s, seems to have been high enough such that your excess spousal benefit is zero. Your excess spousal benefit is the difference between half of your husband’s full retirement benefit and 100 percent of your own retirement benefit, reduced if you took it early (which you didn’t) and augmented by delayed retirement credits, if you take it after full retirement age. (You can’t accrue delayed retirement credits beyond age 70.)
If this difference is negative, your excess spousal benefit is zero. If your excess spousal benefit is zero it will likely be best for you to wait until 70 to collect your retirement benefit and have your husband wait until 70 to collect his retirement benefit. At full retirement age your husband would file just for his spousal benefit based on your work record. Again, since you filed for your own retirement benefit in Dec. 2014, you’ll need to withdraw and repay in order to receive the highest possible age-70 benefit.
Yes, this is crazy complex. Extremely, and I mean extremely, accurate software can tell you right away what’s optimal.But my little brain and your bigger brain can’t go through the potentially tens of thousands of collection strategies in the course of a year, let alone a half second, to figure out what’s optimal. But you can’t trust software unless you have a general understanding of what the right answer might be and are able to check, using the software, why the other options aren’t optimal. This is why I wrote my just released book with Paul and Making Sen$e Medicare columnist Phil Moeller, “Get What’s Yours.”
We want everyone to have a very good handle on what might be best. In some cases, but not yours, it’s immediately clear. In others, knowing what might be best is important before using any software because the software you use may not be accurate or accurate enough to give you the right answer. Asking Social Security what’s best is another option, but one that’s terribly dangerous given that they have no software that optimizes family benefits and given the limitations of many of their staff’s training.
Robin — Springfield, Ore.: I’m 63 and a half, still working but wanting to retire. My husband is turning 60 this May and is unemployed. According to our Social Security statements, his estimated retirement benefits will be several hundred dollars more per month than mine, whether he begins collecting them at 62 or full retirement age. If I stop working prior to age 66 and before he turns 62, am I eligible to collect on his earnings record before collecting on my own or must he be collecting first? What are the implications and/or benefits of collecting on his record rather than my own?
Larry Kotlikoff: Your husband needs to file for his retirement benefit in order for you to file for a spousal benefit on his record. If he files when you reach full retirement age, you can file just for a full spousal benefit (it will equal half of his full retirement benefit) and then wait until 70 to collect your own retirement benefit, which will start at a level that’s 32 percent above your full retirement benefit after taking account of increases due to inflation. When he reaches full retirement age, your husband can suspend his own retirement benefit and start it up again at age 70, also at a 32 percent higher level after inflation.
But here’s the rub. Because your husband will, under this scenario, have filed before reaching full retirement age, he will, up to full retirement age, receive a reduced retirement benefit. And the 32 percent increase will be applied to his reduced retirement benefit, not to his full retirement benefit. I call this strategy “Start-Stop-Start” because your husband starts his benefit, stops (suspends) it, and starts it up again.
This may be your best strategy in terms of maximizing lifetime benefits. Or it may be better for you to file for your benefit when your husband reaches full retirement age, immediately suspend its collection, and then start taking it at 70. This will allow your husband to collect a full spousal benefit starting at full retirement age. At 70 he would then file for his own retirement benefit. Both the start-stop-start and file-and-suspend strategies entail your waiting until 70 to collect your own retirement benefit.
This second file-and-suspend strategy would also provide your husband with the ability to take just his widower benefit before reaching 70 were you to pass away before he reached 70. In short, what’s best for you to do just in terms of maxing out your joint lifetime benefits is complicated for feeble brains like mine (and even Paul’s!). But the right software program can decide in a half second what strategy will max out your lifetime benefits. You’ll also be able to see the annual benefits under each strategy and decide whether you can handle (in terms of having other means of support) the pattern of cash flows that each entails.
M.J. — Conn.: We are quite concerned as we will need to rely so heavily on Social Security in our retirement years. I just turned 62 and my husband recently turned 60. He has been the breadwinner and I have (for the most part) been at home taking care of kids and grandkids. I have a Social Security statement that reflects a tiny sum that I could collect. Think bare minimum!
I understand that I can expect to get half of his much larger Social Security amount at some point. My husband ideally (I think) would wait until he is 66 to file and suspend and then collect at 70. Since I am two years older than he is, when should I apply? I imagine I shouldn’t do anything until he turns 66 and I am 68? Still, I wonder, even if my Social Security check on my own account amounts to peanuts, I would hate to leave it on the table unless it made sense to. Every penny counts. Thanks so much for being a great resource.
Larry Kotlikoff: You will likely do better with the start-stop-start strategy that I just outlined for Robin, depending on whether your husband is still working. (However, if he is still working, his early retirement benefit and your own spousal benefit could be zapped by the earnings test, which would be applied to both of your benefits in a proportional manner.)
In contrast, my guess is that Robin will likely do better following the file-and-suspend strategy I mentioned. This is the maddening thing about Social Security’s awful complexity. What will max out one household’s lifetime benefits won’t necessarily max out another’s. Two couples, A and B, can have the same gaps separating the spouse’s ages, but what’s best will differ depending on differences in work records between the two spouses in each couple. This is where a computer is needed.
But cash flow considerations also come into play. Can you actually get by, in terms of having some spending power, if you follow the strategy that maximizes lifetime benefits? Maybe you can continue to work full time or part time? Maybe you can tap retirement accounts. Maybe you can borrow at a low rate on your home. Maybe you can get a loan from your kids or siblings? Or maybe not. There are other higher detailed and extremely accurate consumption-smoothing software programs that can show you the cash flow (feasible spending) implications of any given Social Security collection strategy you enter into the program.
You said, “I imagine I shouldn’t do anything until he turns 66 and I am 68?” Since waiting to collect your own retirement benefit beyond full retirement age won’t produce a higher benefit once you start collecting your spousal benefit, you should definitely file for your own retirement benefit when you reach full retirement age.