Q&A: Social Security survivor benefits

Dear Liz: I am 63 and retired but have not started to collect my Social Security. My husband will be 67 in March. He started his Social Security at 62. Our plan is to wait until I am 70 to start my benefit, which would make my monthly amount significantly larger than his. If I predecease my husband, would he be able to collect my benefit instead of his own? If I started benefits now, our checks would be relatively close in size, although mine would be a bit higher than his current amount.

Answer: If you had started benefits already, your husband’s survivor benefit would equal what you were receiving when you died. Since you didn’t start early, though, your husband will get more.

If you should die before your full retirement age of 66 without starting retirement benefits, he would receive a survivor benefit equal to what you would have received at 66.

If you continue to delay benefits past age 66, your retirement — and thus his survivor benefit — would accrue the “delayed retirement credits” that boost your Social Security check by 8% annually between age 66 and age 70, when your benefit maxes out. In other words, if you die between 66 and 70 without starting benefits, he would get the delayed retirement credits and larger check you’d earned even if your checks hadn’t started.

As you can see, delaying the start of benefits is a great way to maximize what a survivor receives. It’s particularly important for the higher earner in a couple to put off filing for retirement benefits for as long as possible.

Q&A: Long-term capital gains tax

Dear Liz: I’m very confused about the long-term capital gains tax. Several years ago, I bought a house for $525,000 in Texas. I’ve been thinking about selling, and my real estate agent informed me that my home is now worth $1.5 million. I am a disabled veteran and have no tax liability because my income is tax-free. Since this is my primary residence, I know that the first $250,000 in gains is exempt from tax. What I just don’t understand is what my tax liability will be on the rest of the money.

Answer: If you sell this house, you’ll essentially go from the bottom tax bracket to the top. Single people with incomes over $415,050 in 2016 are subject to the 39.6% marginal tax rate.
Most people pay capital gains tax at a 15% rate, but those in the top bracket face a 20% rate.

Improvements you’ve made to the house and some other expenses, such as selling costs, can reduce the amount of gain that’s subject to tax.

This big windfall could have other effects on your taxes, so you’ll want to consult a tax professional before proceeding.

Q&A: Paying off student loan

Dear Liz: am going to pay off one of my daughter’s private student loans. One has a balance of $8,500 at 4% interest and the other is for $7,500 at 6%. Which one should I pay off?

Answer: You have a lucky daughter, either way.

In addition to balances and rates, the other variable you need to consider is whether the rates are fixed or adjustable. These days, many private student loans have fixed rates, but in the past most of this debt had variable rates. Variable rates mean higher costs and larger payments when interest rates rise.

If both loans have variable rates, or both are fixed, then paying off the highest rate debt first makes the most sense. If the lower rate loan is variable and the higher rate one is fixed, you’ll have to guess whether interest rates are likely to rise enough in the next few years to instead pay the larger balance first. Some people might want to pay off a variable debt just to eliminate the uncertainty, while others are willing to gamble that rates aren’t likely to jump two full percentage points before the loan is scheduled to be paid off.

Q&A: Why your W-4 forms are likely ‘wrong’

Dear Liz: After being an unmarried couple for 15 years, we were married in February 2014. Though I sent this information to my company’s benefits department, I neglected to change my W-4 status from “single” to “married.” I’m crossing my fingers that when all is said and done, we have paid the correct taxes when we filed for 2014 (we filed jointly as married) regardless of what was withheld pursuant to the W-4. Or do I need to inform the IRS of the oversight for the 2014 and 2015 tax years?

Answer: Best wishes on your marriage, and don’t worry. Since you were married as of Dec. 31, 2014, and you filed as a married couple for 2014, you’re good — assuming, of course, you used current tax software or IRS tax tables for married filing jointly.

The W-4 form is meant to tell your employer how much of your paycheck you want withheld. Most people’s W-4s are “wrong” in the sense that they have the government withhold too much. They get fat refunds that average close to $3,000, but they aren’t penalized for doing so (other than not having access to their own money until they get that refund, of course).

If you’re getting refunds, you can tweak your withholding when you visit your benefits department to update your W-4. The IRS and TurboTax, among other sites, have online calculators to help you figure out what you should have withheld.

While you’re there, check your beneficiaries for any workplace retirement plans and life insurance. Federal law says your spouse must be the beneficiary of your retirement plan unless he or she signs a waiver. Life insurance, by contrast, goes to the named beneficiary even if you subsequently marry.

Q&A: Investment returns

Dear Liz: In a recent column you mentioned a fund that shows a return of 7% consistently for several years to present. Would you be so kind as to provide me with the name of the fund?

Answer: I don’t know of any mutual fund that’s shown a consistent 7% return year in and year out. What you may be referring to is research showing overall stock market returns. Taking into account each year’s gains and losses, the average annual return over each 30-year period starting in 1928 — from 1928 to 1958, 1929 to 1959, and so on — is greater than 8%, but you can’t expect 8% every year.

Q&A: Social Security survivor benefits

Dear Liz: My 90-year-old father recently passed away. My mother, who will be 90 in February, has a phone meeting with Social Security coming up. It is my understanding that she will have the opportunity to take my dad’s full benefit in place of hers since it is much higher. Is that correct? Is there anything else I should know to help her receive the maximum benefits?

Answer: Survivors get only one Social Security check, and it’s the larger of the two they received when their spouses were alive. So yes, she will get the amount your father got. At this point she can’t do much to maximize her Social Security benefit. What she gets depends on when your father started his benefit. The later he started, the more she’ll receive.

Q&A: Health insurance subsidies

Dear Liz: We’re living on a very tight budget and often have to put groceries and unexpected expenses on a credit card that’s in my husband’s name only. I have no personal income. My husband is on Medicare, but I’m too young to qualify and need to find low- or no-cost healthcare, (I haven’t had any insurance since 2007.) They are using my husband’s total income and coming up with high rates that are supposed to be lowered by tax credit, but we don’t pay income tax because our income is too low. Should they be using what the IRS considers our income to be? Or could I apply using my zero personal income?

Answer:
By “they,” you presumably mean a health insurance marketplace where you shopped for policies offered by private insurers. HealthCare.gov is the federal marketplace and many states, including California, offer their own. When you shop for a policy through a marketplace, you can qualify for subsidies that can dramatically lower the cost of your coverage.

This subsidy, also known as a premium tax credit, is based on your household income, not your individual income. The tax credit is refundable, which means you get it whether or not you owe federal income taxes, and you can opt to have the subsidy paid in advance to the health insurer to lower your premiums. You don’t have to wait until you file your taxes to get the money back.

You’ll want to act quickly, though, because the penalty for not having coverage is rising. The penalty for 2016 is the greater of $695 per adult or 2.5% of income. You still have a short window to avoid that hit: The enrollment deadline is Jan. 31.

Q&A: Credit card billing errors

Dear Liz: I have a dispute with a credit card company over an online transaction that I canceled. The company charged me three times but refunded only one of those charges. The credit card company initially canceled the other two transactions but I was rebilled without my knowledge. Despite my submitting evidence and the card company agreeing that I don’t owe the money, it will not take the charge off. Who do I contact to get this settled? When I call the card company, they say they will look into this and contact me in 10 days, which they never do.

Answer: It’s convenient to dispute credit card billing errors over the phone. If you want to preserve your rights under the federal Fair Credit Billing Act, though, you need to put your complaint in writing.

Your letter should be sent to the address given for billing inquiries, rather than the address where you send your payment, according to the Federal Trade Commission. The letter needs to include your name, address and account number along with a description of the problem. You should send copies of any receipts or other documents that back up your case. The letter should be mailed in time to reach the creditor no later than 60 days after the statement with the error was generated. The letter should be sent by certified mail, return receipt requested.

That’s a cumbersome process, and often not necessary for people who monitor their statements and catch a problem early. Ideally, they first would contact the merchant and give it a chance to correct the problem. If the merchant doesn’t do so within a few days, the customer can contact the credit card company and give it time — say, 30 days — to resolve the situation. If that doesn’t work, then the customer can fire off a letter.

Even if you’re now outside the 60-day window, you should still send a letter and ask for a prompt response. If you don’t get one, you can file a complaint with the Consumer Financial Protection Bureau, which intervenes with credit card companies to resolve such disputes.

Q&A: Social Security windfall elimination provision

Dear Liz: You’ve written about the windfall elimination provision, which reduces the Social Security checks of people who get a pension from a job that didn’t pay into Social Security. I am affected by this provision, but a Social Security representative told me that as long as I don’t start withdrawals from my government pension account, I am entitled to full Social Security payments. This ends when I turn 701/2 years old and must start taking automatic withdrawals from my pension. This info might help with the planning process.

Answer: Thank you for sharing this tip. The windfall elimination provision was enacted to keep people with government pensions that didn’t pay into Social Security from receiving proportionately more than people who paid into the system their entire working lives. But as you note, it’s possible to delay the provision by putting off the start of pension benefits.

Social Security can be complex, and claiming strategies that might work for one person could shortchange another. That’s why it’s important to educate yourself and seek out advisors who understand how Social Security works.

Q&A: Social Security and marriage

Dear Liz: My partner is 69 and receives about $800 monthly from Social Security. I am 66 and receive about $1,100 from Social Security. We are not married but have been living as such for the past 10 years. We own our home together. Does it make sense financially for us to marry?

Answer: When one of you dies, the survivor will have to get by on one Social Security check. If you were married, it would be the larger of the two checks you received as a couple. Unmarried survivors keep their own checks and lose their partners’ benefits, even if the partners’ benefits were larger.

One reason not to marry would be if either of you qualified for spousal benefits based on a previous marriage, and those benefits were greater than what you’re receiving now. Many people don’t realize that divorced people can receive spousal benefits based on an ex’s work record, as long as the marriage lasted at least 10 years and the ex is at least 62. Divorced spousal benefits end, however, when the recipient remarries.

Divorced people who were married at least 10 years also may qualify for survivor benefits if their exes have died. Unlike spousal benefits, however, survivor benefits can continue if the recipient remarries after reaching the age of 60.