Will Social Security tell me if I’m leaving benefits on the table?

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.

Here’s my question to myself for today. It’s based on an actual couple’s experience, which made me want to ask, how does a couple know if there are benefits they’re not taking but could be? Will Social Security tell them?

Answer: No, Social Security will absolutely not inform you. Let me illustrate this with an example. Mark and Joan just celebrated their 62nd birthdays by unadvisedly rushing over to their local Social Security office and signing up for their retirement benefits. They both realize they can live to 100, but their broker convinced them that he can make more money for them with their reduced Social Security benefits checks now than if they waited to collect higher Social Security benefits later.

What Mark and Joan don’t fully realize is that their broker is promising them not just a higher, but also a lower return than Social Security. Come again?

Well, it depends on the future. In some situations, the broker could indeed deliver a higher return than Social Security. But in others, he’ll underperform Social Security. The Social Security Administration sets Mark’s and Joan’s retirement benefits to 76 percent larger values, after inflation, if they start collecting them at 70 rather than at 62. By picking the right benefit collection strategy, Mark and Joan can jointly optimize both their retirement and spousal benefits. This optimization will, in general, not entail their both waiting until age 70 to file for their retirement benefits.


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But their broker is Mark’s first cousin and best friend. So they followed his advice. When they sat down with the Social Security staffer, named Clair, at the local office, Joan, who was a much lower earner, asked if she could file for a spousal benefit too. Clair said not only could she file for a spousal benefit, she had to file because of what’s called Social Security’s deeming provision.

Clair did some quick calculations and said, “Ok, here’s the deal. You, Joan, can and must file for a spousal benefit, but you earned too much to get one, so your spousal benefit is zero.”

Joan said, “You’re kidding, I thought I was going to get my retirement benefit plus half of Mark’s retirement benefit?”

Clair smiled and said, “There is a lot of misinformation out there. We at Social Security know the rules, and what I’m telling you is what our computer system is telling me. You can file for your spousal benefit — in fact, you have to file for your spousal benefit, but it’s zero, so there is no spousal benefit. The reason is that you get what is pretty much the larger of the two benefits when you file for both. And your retirement benefit exceeds your spousal benefit.”

“Ok,” Joan said, “If that’s the case, that’s the case. ​Please g​ive me ​whatever you can.”

What Social Security didn’t tell Joan is that she could wait until full retirement age and collect half of Mark’s full retirement benefit and wait until 70 to collect her own 76 percent higher retirement benefit. Instead, Clair from Social Security said, “It’s good you are taking your benefits early. You can never tell when you’ll die.”

Now let’s slow forward to three months from now when Mark is offered a very high-paying job if he’ll come out of retirement. Mark’s been a good upper-income earner but no superstar. Now he’s been given a new job that will pay him more than the covered earnings ceiling ​– a job he can ​do as long as his brain’s ticking. What’s the job? He’s going to serve on a corporate board that pays board members large annual amounts for their service.

Mark realizes that going back to work will cost him his Social Security benefits through full retirement age due to the system’s earnings test. But he’s done his homework and knows that thanks to Social Security’s adjustment of the reduction factor, any benefits he loses between now and full retirement age will be made up by Social Security in the form of a permanently higher benefit starting at full retirement age.

Now fast forward 23 years. Mark and Joan are 85. They are in perfect health. They are sure they can make it to 100. They’ve had stress tests, total body scans, knee and hip replacements, colonoscopies up the wazoo, and they’re avid golfers, entertainers, travelers and readers. And one thing Joan keeps reading about are spousal benefits. She’s learned enough to realize that because Mark has made more money ever since age 62, and since his full retirement benefit has been and continues to be recomputed each year based on his additional covered earnings, her spousal benefit may now exceed her own retirement benefit. Furthermore, she realizes that if she now qualifies for her spousal benefit, she probably qualified last year and for many years before that.

Joan is right. She now qualifies for about $3,000 (in today’s dollars) per year in extra or excess spousal benefits over and above her retirement benefit. And, though this excess spousal benefit was smaller in the past, it became positive when Joan turned 70. All told, Joan’s excess spousal benefits since age 70 amount to over $30,000 — and that ignores the interest she could have earned on the money had she received it.

Joan’s upset. She marches over to the local Social Security office. There, to her great surprise, is Clair, looking a little older, but still very happy to help. Joan demands all her past spousal benefits that she had originally asked for but never received. Clair smiles and says, “There is a lot of misinformation out there. I can give you spousal benefits back six months, and from here on out. But that’s it.”

Joan screams, “What? I asked for my benefits when I was 62. I filed for them. You didn’t give them to me once they became positive. This is grossly unfair.”

Clair smiles. “There is a lot of misinformation out there. When you didn’t quality for a positive spousal benefit back at age 62, we treated you as not having filed. In order to have received your excess spousal benefits you needed to come in ​and apply again for them when they became positive.”

“But you never notified me when they became positive,” Joan exclaims.

Clair smiles again. “That’s not our job.”

Don’t expect Social Security to tell you anything about what it owes you. Use very accurate software that shows you your annual benefits in all future years, and take special notice if a benefit that is initially zero becomes positive in a future year. When that happens, go in, find Clair, and smile.

Robin — Idaho: I married my husband in 1987. We were still married when he passed at 47 in 2005 after collecting Social Security disability for about a year. He had the larger cumulative income at the time of his passing, however, I have now surpassed that at $32,000 per year.

At 62, I am still working towards a full retirement age of 67. I filed for widow’s benefits when they became available to me. They are being offset by my income such that I received a $1,330 benefit for each of the last four months of 2013. I thought I should put off collecting my own benefit as long as possible to help it grow?

I will be vested in my company as of August 2015 and eligible to retire. However, I’m slowing down and not sure I can work (at this pace) until 2017 when I am 67. (I wanted to try to stay on the job to continue our free health insurance premiums until my daughter turns 26 in 2017.)

Am I on the right track? Is there something better I should be doing to maximize my retirement and Social Security benefit?

Larry Kotlikoff: Sorry for your loss. It sounds like you probably made the right move in taking your widows benefit first when you reached age 60, while letting your own retirement benefit grow.

But it might have been better to have applied for your retirement benefit first and let your widows benefit grow. Which of these two options widow(er)s should pursue is devilishly complex and discovering the right answer requires using extremely accurate software.

Yes, you are now making more money, in dollar terms, than your husband made, but Social Security indexes past covered earnings using the historic growth rate in average wages to calculate both your widows benefit and your own retirement benefit. It actually compares two indexing procedures (called “windexing”) to calculate widow(er)s’ benefits if the worker passed away prior to age 62.

There is also a separate, complex formula to determine the widows benefit for widow(er)s of deceased disabled workers (deceased spouses who were receiving disability benefits prior to passing away). So the fact that you are now making more money than your husband made doesn’t mean taking your widows benefit first was the right decision when you made it at age 60. But you made it, and it can’t be changed at this point. (And, again, it probably was the right decision.)

I would encourage you to continue working as long as you can and to wait, if possible, until age 70 to take your own retirement benefit. Depending on your earnings history and your widows benefit and how long you wait to file, your total check may end up being larger when you file for your retirement benefit.

I would not advise you to file for your retirement benefit at full retirement age and suspend its collection. Doing so will plunge you into what I call “excess benefit hell,” where you would no longer receive your current widows benefit, but rather just the larger of either your widows benefit or your retirement benefit — were you to be collecting it.
I’ve advised certain people to file and suspend their retirement benefits at full retirement age in order to be able to collect all their suspended benefits in one lump sum payment if they discover they urgently need a large infusion of cash. But I wouldn’t advise you or others in your shoes to do so.

Marlene — Indiana: I am almost 61, and was widowed at age 56. My husband was 59 and had not taken any benefits. My primary insurance amount (PIA) is half of what my husband’s was. Everyone kept advising me to take the survivor benefit at 60, but I felt that would be a mistake because of the reduction to 71.5 percent and also because it would make no use of my own retirement benefit I earned by contributing to the system for 24 years.

I currently make very low wages and am struggling month to month. I would like to start my own benefit at age 62, then switch to my survivor benefit at either 65 or 66, depending on whether I can financially sustain waiting that extra year. I know the numbers of years I will survive is a big question mark, and 66 is the best option for the survivor benefit.

What would be your advice to me? There is so little info out there for strategies for widows, especially for those of us under retirement age but without dependents at home.

Larry Kotlikoff: Very sorry for your loss. Of late, I’m getting a lot of questions just like yours. Your proposed strategy may be best. But I would not follow it or take the advice of anyone else on this. Inside, I would use a highly precise software tool to make this calculation. Your situation is different from other widows’ insofar as your husband didn’t collect his retirement benefit early. You are also working and may be subject to the earnings test. And the adjustment of the reduction factor, which will restore specific benefits lost to the earnings test, may not, in your case, be of help because you may flip to a different benefit that hadn’t been lost to the earnings test. An accurate program that incorporates all the details of Social Security’s complex, interconnected provisions will be able to tell you what collection strategy will maximize your lifetime benefits.

James — Kentucky: I am currently 58 and have been on Social Security Disability for eight years due to spinal cord injuries sustained from a broken neck. I am mobile but am unable to work any longer. I also am paying $136 a month for parts A, B and D of Medicare. What happens when I turn 66? I was born in 1955 and was married twice. The first time for 20 years and the second for about four days. My first ex is still employed I think, but she did work for more than 10 years. Can I get anything out of my ex for once? I worked since I was 16. Once I go onto SSI, will my disability insurance decrease, increase or stay status quo?

Larry Kotlikoff: When you reach full retirement age, which will be ​when you are 66 and four months, you can A) withdraw your retirement benefit and B) file just for your divorcée spousal benefit based on the earnings record of your ex from the longer marriage. If your ex is over 62 you’ll be able to collect half of her full retirement benefit. At 70, you can then file for your own retirement benefit. It will be about 30 percent larger than your disability benefit after inflation. At that point, you’ll collect your retirement benefit plus your excess spousal benefit.

Note that I’m telling you to withdraw your retirement benefit. I’m not telling you to suspend your retirement benefit. If you reach full retirement age without having withdrawn the benefit, your disability benefit will automatically convert into a retirement benefit for which you will be treated as having filed. And, as I’ve described in a prior question today, once you file or are viewed by Social Security to have filed for your retirement benefit, you plunge into “excess benefit hell.” In excess benefit hell, you can no longer receive a full divorcée spousal benefit while letting your own retirement benefit grow. Instead, you are given an excess spousal benefit. The excess spousal benefit is calculated as the product of A) half of your ex’s full retirement benefit less 100 percent of your retirement benefit, inclusive of any delayed retirement credits, and B) the early spousal benefit reduction factor (which wouldn’t apply in your case since you wouldn’t be taking a spousal benefit before full retirement age).

Long story short, you can collect on your former “beloved” if she’s not too young when you reach full retirement age and if you play your cards right.

Catherine — California: My girlfriend is 68 and has deferred collecting her Social Security until she is 70 years old. (She is still working full time.) Her husband is 72, retired, and is currently collecting his Social Security. She was advised that she could file and collect half of her husband’s Social Security, while he is still collecting his full amount. I don’t understand, isn’t this double dipping?

Larry Kotlikoff: It’s true. By not filing just for her spousal benefit, she is foregoing receiving half of his full retirement benefit (which is not necessarily equal to the benefit he’s receiving).

Is this double dipping? When it comes to Social Security, I don’t know what to say is and is not double dipping. Social Security’s provisions are monstrously complex. They were developed over time by old, white guys in back rooms of Capitol Hill. These fellows (members of Congress, Congressional staffers, Social Security actuaries, and others) decided what was and wasn’t socially equitable. They probably did so with the best of intentions and with strong faith that they were doing the right thing as they saw right. But in piling rule upon rule, exception upon exception, and gotcha upon gotcha, they left us with a basic retirement saving system that no one can understand and that capriciously redistributes across households based on their particular circumstances and ability to get proper Social Security collection advice.

Your girlfriend is a prime example. She has already lost about two years of spousal benefits because she didn’t know about those benefits. And they are lost for good. At most, she’ll be able to collect six months of her spousal benefits retroactively.

Your friend may be very poor or very rich. But whatever she is, why should she lose these benefits when someone else in her same situation gets to collect them because that other person learned at the right time that she could do so? Also, her husband paid 12.4 percent of his pay via employee and employer Social Security FICA taxes for the entire set of benefits that Social Security provides. Why is it double dipping if her husband paid for what amounts to an annuity for his wife?

Teresa — Texas: I am a 66 year old retired teacher in Texas, from whom I receive an annuity. My last day of teaching, however, in June of 2004, was with a district that was part of the Social Security system as well as the Texas retirement system. I have also worked other jobs that paid into the Social Security system and will receive about $500 a month beginning this month. I am penalized almost $500 because of the windfall provision. My husband is 62 and will not draw his Social Security until at least the age of 66. Should I file on his benefits at that time? He will receive more than $2,000 a month.

Larry Kotlikoff: You should file for your excess spousal benefit when your husband files for his retirement benefit.

​As indicated above, it may not be ​​subject to the Government Pension Offset​, which would otherwise reduce your excess spousal benefit by up to two-thirds of your non-covered pension​. I​t can’t hurt to file for your excess spousal benefit as soon as your husband files. However, w​hat may be best is ​for him to file for just a spousal benefit based on your earnings record when he reaches full retirement age and then wait until 70 to file for his own retirement benefit. In this case, you’d need to wait until he was 70 to file for your excess spousal benefit. Also, consider suspending your retirement benefit and starting it up again at 70. It will start up at a roughly 30 percent higher value after inflation.

Now back to the Government Pension Offset provision. Prior to July 1, 2004, a person was exempt from the GPO if their government work was covered by Social Security on the day they retired, even if all of it was previously not covered. Congress changed that for people retiring after June 2004, but grandfathered those people who retired before that.

The Texas public pension programs actually prompted the change in the law because they had come up with some “special rules” designed to help their employees circumvent ​the ​GPO. These Social Security sites can help.

​But if you really did retire prior to July 1, 2004, and ​you were ​contributing to Social Security when ​you ​​retired, ​your uncovered​ pension will not ​trigger the ​GPO.