Spousal benefits, you say? Does age difference matter?

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.

Editor’s Note: Larry’s new book, which was featured on Making Sen$e Thursday on the NewsHour last week, sparked many of this week’s questions. In particular, readers are curious about the file-and-suspend option that allowed Paul’s wife Jan to file for her retirement benefit at full retirement age (66) but then suspend it. A year later, when Paul hit 66, he took just a spousal benefit. At 70, they both took their full retirement benefits at their highest possible values. Watch Larry explain that strategy and follow up with readers below.

— Simone Pathe, Making Sen$e Editor

Anonymous — Bethesda, Md.: I saw your PBS Newshour interview about spousal benefits. I earn less than my spouse, and I turned 66 in August. My spouse turned 66 earlier this month. Are we better off if the higher wage earner applies and suspends, with the lower wage earner applying for spousal benefits? If the wage differential doesn’t matter, could I even apply now, since it has been just over six months since I turned 66?


Pose Your Questions to Larry Here

Larry Kotlikoff: Yes, in your case, since you are so close in age, the higher-wage-earning spouse should file and suspend and the lower-wage-earning spouse should file just for her spousal benefit. So in your case, your husband needs to file and suspend. You definitely do not want to file on your own account until age 70. If you do, you’ll plunge into excess benefit hell and collect just your excess spousal benefit, which could easily be zero. So your husband files and suspends, and you file just for your spousal benefit (this is called a restricted application). You both take your retirement benefits at 70.

Karin — Santa Rosa, Calif.: I listened to today’s NewsHour (about filing for spousal benefits, then filing and suspending) with great interest. My question: Does this scenario work equally well when the age difference between two spouses is greater than a year or two? I am 55, and my husband is 62; we had each planned to retire at age 65. My husband earned the higher income. Would the file-and-suspend strategy work out in this scenario and how would it play out? If not, do you have any other suggestions? Thank you for your answer.

Larry Kotlikoff: When you reach full retirement age, your husband will be over 70 and definitely have filed for his retirement benefit. Hence, you’ll be able to file just for a full spousal benefit. There is an argument for your husband to file and suspend when he reaches full retirement age even though filing so early isn’t needed for you to file for your full spousal benefit.

The argument is that by filing and suspending, your husband will have the option, in an emergency, to ask Social Security to pay him in a single lump-sum check all his past suspended benefits. Doing so, will, however, reset his benefit to the level at the time he suspended it.

The major downside to doing this, however, is that if you pass away before your husband reaches 70, he won’t be able to collect a full widows benefit on your work record and then flip to his own retirement benefit at 70. He’d be stuck collecting his excess widows benefit, which would be zero if he’s been the higher earner. So, my guess is that it’s best for him not to file and suspend.

Susan — Boulder, Colo.: Does it make a difference for spousal benefits if there is a three-and-a-half year age difference between spouses? My husband and I are on public-funded retirement plans. He decided to begin his Social Security benefit at 65. He is now 68 years old. I am 64 and had decided to collect my Social Security benefit at age 70.

We are now curious if I should do as your program recommends — sign up for Social Security and then suspend and have him claim spousal benefits on my Social Security. Was this recommendation specifically to be implemented at age 66? And is the reverse — where he would suspend his benefit and I would collect a spousal benefit — appropriate?

Larry Kotlikoff: The program is finding the strategy via an exhaustive search to insure that what it suggests does, indeed, maximize your household’s lifetime Social Security benefits. The Government Pension Offset reduces a spousal, widow(er), divorcee spouse or divorcee widow benefit by two-thirds of the non-covered pension. Hence, if the program is recommending that you be the one to file and suspend, it must be that your non-covered pension is larger than your husband’s. Indeed, if it’s high enough, the GPO could wipe out your spousal benefit entirely. In contrast, two-thirds of your husband’s non-covered pension may be less than his spousal benefit, permitting him to collect some spousal benefits.

Randy — Edison, N.J.: I am reading your book. I am particularly interested in the file and suspend with spousal benefit option as described. Here is my question: I am 16 months older than my spouse. Would I be better off filing and suspending when my spouse is just about to turn 66 instead of filing and suspending when I turn 66? My reasoning is that at 67 and four months I would be getting a bigger benefit, so the spousal benefit of half would be larger than if I filed and suspended at 66. So my spouse would have four years of this larger benefit or is there something that requires that the older spouse file and suspend at 66? Then at 70 each of us would file for “full” benefits. What do you think?

Larry Kotlikoff: You should wait until your spouse reaches full retirement age to file and suspend for a grim reason. Were your spouse to pass away before then, you could then collect a full widow(er) benefit before age 70 and then take your own retirement benefit at 70.

If you file for your retirement benefit when you reach full retirement age and your spouse were to pass away, your widower benefit would become your excess widower benefit. This is true even if you suspend your retirement benefit.

The advantage of filing and suspending is that you can, if you need money in an emergency, ask Social Security to pay you all your suspended benefits in one check. If you don’t formally suspend and just wait to collect your retirement benefit at, say, 70, you don’t have this option. This is why I recommend that never-married people, as well as those who married but divorced before 10 years, go ahead and file and suspend upon reaching full retirement. They will then have the option of recovering their suspended benefits in an emergency. On the other hand, if such never-married or effectively never married people were possibly going to get married, my advice might be different.

The other option is for your spouse to file for her retirement benefit early and then suspend it at full retirement age and start it up again at 70. This would permit you to collect a full spousal benefit on her work record. We call this strategy Start-Stop-Start. Whether Start-Stop-Start is best for you and when, exactly, your spouse should file can only be determined by extremely accurate commercially available Social Security maximization software.

The amount that your spouse receives from your account will be based on your full retirement age benefit, not including any delayed retirement credits that you may receive for waiting past age 66 to receive benefits. Therefore, her spousal benefit amount would be the same whether you file and suspend at age 66, or at age 67 and four months.