What all remarried newlyweds need to know about Social Security

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: We are newlyweds (both are divorced). I am 65 and my wife is 59. I am planning to file and suspend at 66, but I have two questions. First, can my wife for spousal benefits at 62 and then claim her own benefits at 70? And second, as newlyweds, is there a minimum number of years you must be married before filing for spousal benefits?

Larry Kotlikoff: You have to be married for a full year before your new wife can collect a spousal benefit based on your work record and nine months before she can collect a widows benefit on your record if you pass away.


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She can file at 62 for her reduced spousal benefit because you will have filed for your retirement benefit. But she’ll be deemed to be also filing for her reduced retirement benefit. And what she’ll receive will be approximately the larger of the two benefits. (To be precise, she’ll get her own reduced retirement benefit plus her excess spousal benefit reduced based on the spousal-benefit reduction factor.) Her excess spousal benefit is the difference between half of your full retirement benefit and her own full retirement benefit — augmented by any delayed retirement credits she may accumulate if she, too, suspends her retirement benefit at full retirement age to let it grow by 8 percent per year (inflation adjusted) up through age 70 or at an earlier age if she reinstates her benefit before 70.

Given the progressiveness of the formula that relates a worker’s full retirement benefit (Primary Insurance Amount) to the worker’s Average Indexed Monthly Earnings (AIME), one half of your full retirement benefit may not exceed 100 percent of her full retirement benefit (again, inclusive of any delayed retirement credits). And even if it does, the difference may be very small. Hence, by having your wife file at 62, you will A) likely either fully or mostly wipe out her spousal benefit, and B) leave her with a permanently reduced retirement benefit (even if she suspends it at full retirement age, it will restart at a lower value than had it not been suspended). Also, if she has been a higher earner than you, you may reduce the size of the widows benefit you can collect on her record if she predeceases you.

You should also be aware that since you married after age 60, you can collect a widow(ers) benefit on your ex-spouse’s work record only if you were married for at least 10 years.

What’s your best strategy? It is very likely to be as follows: A) have your wife wait until full retirement age to file just for her spousal benefit and, thereby collect a full, not an excess spousal benefit — namely 50 percent of your full retirement benefit — and, B) wait until 70 to file for her retirement benefit. And if your ex or current wife dies, you should file for your divorced widowers benefit right away, while still waiting until 70 to restart your own retirement benefit.

Question: My husband died in 1999 at the age of 57. I am 63 and am planning to retire at the end of 2014. I had planned on taking my husband’s benefit (I’m assuming a widows benefit?) when I retire, then changing over to my retirement benefit when I turned 70. I have just learned about the “deemed” benefit and now question whether this is what I want to do. I had asked at my Social Security office if this was doable and they said “yes,” but after more research, I think I would be locked into a lower benefit for life. Now I don’t know what is best. Can you advise?

Larry Kotlikoff: Deeming doesn’t arise in the case of someone trying to collect a widow(er)s or divorced widow(er)s benefit. You can collect your widows benefit starting now and, as you plan, wait until 70 to take your highest possible retirement benefit. Or you can take your reduced retirement benefit now and start your widows benefit at full retirement age, when it will start at its largest value. What’s best can be calculated correctly in a half-second by a first-rate commercial software benefit maximization tool, which knows more about Social Security than many, if not most, of the folks at Social Security, who, while well meaning, are very poorly trained to understand a system that is, I believe, more complex than our federal income tax in its entirety.

Question: I took Social Security at age 62 and a year later was hired for full-time employment. I immediately notified Social Security that I was returning to work and asked them to suspend my checks, which they did beginning in November 2012. In addition, I owed them money for making more than allowed doing contract work — I pay $75 per month. I want to begin taking Social Security at age 67. Will my payments go up at that time?

Larry Kotlikoff: Your payment will be increased when you reach full retirement age via what’s called the Adjustment of the Reduction Factor or ARF. The ARF will give you credit with respect to your own retirement benefit for each month of retirement benefits lost due to the earnings test. (Note, if you flip onto a spousal or widow(er) benefit or divorced spousal or divorced widow(er) benefit, the ARF won’t help you.) I recommend you consider suspending your retirement benefit at full retirement age and waiting until age 70 to collect your highest possible ARF’d retirement benefit.

Question: Larry, thanks for what you do. I am 61, and maybe going to retire at 62 from the Sheriff’s Department. I do not fall into the windfall provision category. I have an estimated full retirement benefit of $2,578, and a reduced rate at 62 of $1,895.

I have done the Primary Insurance Amount calculation formula with a $4,552 number for my Average Indexed Monthly Earnings. Social Security’s estimate is no more than $4,419 in Maximum Family Benefits. Everywhere I read on their site, the children’s benefit is 50 percent of the full retirement number, up to the family max, and divisible by the number of auxiliaries.

I have two small children — seven and 11. Is their benefit really based on the full benefit, even though I am taking the discounted rate? Everywhere on Social Security’s site, it only refers to the full benefit calculation, and even uses an example at the formula page using a 62-year-old retiree. Can you comment?

Larry Kotlikoff: Yes, the child benefit equals 50 percent of your full retirement benefit, not your actual benefit. But the family benefit maximum can range from 150 percent to 187 percent of your full retirement benefit depending on the size of your full retirement benefit. So your children may receive only 25 percent each of your full retirement benefit.

Before you do what you intend, you need to compare your proposed strategy (using a very careful commercial Social Security benefit maximization tool) to see if this is your best strategy. It may be better to wait until full retirement age to file for your full retirement benefit and suspend its collection until age 70. This will permit your children to collect their child benefits starting at that point.

[nhullquote]”Also bear in mind that when you pass away, each of your children, while still under age 18 or 20, if they are in elementary school or high school, will be able to collect 75 percent of your full retirement benefit.”[/nhpullquote]

If you do as you intend, be aware that you can suspend your retirement benefit at full retirement age and restart it at, say, age 70 at a 32 percent higher level (after inflation) thanks to the delayed retirement credit.

Also bear in mind that when you pass away, each of your children, while still under age 18 or 20, if they are in elementary school or high school, will be able to collect 75 percent of your full retirement benefit. Even if the family benefit maximum is just 150 percent of your full retirement benefit, you’ll be dead. Hence, your own retirement benefit won’t be counted as taking up 100 percent of the 150 percent family benefit maximum. In other words, your death means that your kids won’t have to share your own retirement benefit in using up the family benefit maximum.

Linda West — Burson, Calif.: My husband started receiving Social Security benefits at age 63 due to the economy but still works self-employed. I am now 66 — full retirement age — but still working. Should I file for a spousal benefit and then suspend and collect mine at age 70?

Larry Kotlikoff: You definitely don’t want to file and suspend if you seek to collect a full spousal benefit based on your husband’s work record. The act of filing will plunge you into “excess benefit hell,” in which case you will collect an excess, not a full spousal benefit. If anything, you should simply file a restricted application for your spousal benefit.

Note, however, that the earnings test to which your husband may be subject if he’s earning too much, will be applied to your spousal benefit as well as to his retirement benefit. Indeed, if he’s earning enough, the earnings test can wipe out both of these benefits. At his full retirement age, the earnings test will end and his retirement benefit will be permanently adjusted upward due to the Adjustment of the Reduction Factor based on just the benefits he loses due to the earnings test.

The spousal benefits you lose due to the earnings test won’t be recouped. So, if you’re are going to lose all or most of your spousal benefit due to the application of the earnings test to your husband’s earnings, your applying right away for your spousal benefit (and just for your spousal benefit) may lower the value of the Adjustment of the Reduction Factor to your husband. This will occur if some, but not all, of his early retirement benefit is wiped out due to the earnings test. I know from personal experience that getting this exactly right in Social Security optimization software requires meticulous attention to detail. Were I you, I’d check with the vendors of such software about their treatment of this issue.