Q&A: Social Security lets you un-retire to avoid a benefit hit, but only once

Dear Liz: My wife recently retired at age 62 and will collect Social Security. But she has decided to return to work full time. I know she will collect less if she makes more than Social Security allows per month. If she eventually goes back to not working at all, can she go back to collecting the original amount?

Answer: Yes, but she’d be smart to reconsider her decision to start collecting Social Security early because she’s permanently reducing her benefit for little (if any) good reason.

The earnings test, which applies when people start Social Security early, takes away $1 of benefits for every $2 she earns over a certain limit, which is $16,920 in 2017. The earnings test will end when she reaches her full retirement age, which for people born in 1955 is 66 years and two months. Her check at that point would be what she originally received at 62, plus any cost of living increases.

But that original check is reduced by nearly 25% from what she would get at full retirement age, and the reduction lasts for the rest of her life. That’s a huge hit, and it should make her question the advisability of starting benefits early when so much could be taken away from her.

Fortunately, she has a little time to change her mind. Social Security allows applicants to withdraw their applications, allowing their benefit to continue growing, if they do so within 12 months of becoming entitled to benefits. People who withdraw their applications have to pay back any benefits that received in order to restart the clock.

This is a one-time do-over: Applications can be withdrawn only once in a lifetime and can’t be withdrawn after a year has passed. She can read more about this at the Social Security site, https://www.ssa.gov/planners/retire/withdrawal.html.

Social Security benefits make up half or more of most people’s retirement income. Making smart decisions is essential if you want to avoid a lifetime of regret.

At a minimum, people should use a free claiming-strategies calculator, such as the one on the AARP site, to determine when and how to begin benefits. For $40, they can use more sophisticated planners such as MaximizeMySocialSecurity.com and SocialSecuritySolutions.com.

Another good option is to consult a fee-only financial planner familiar with Social Security claiming strategies to make sure they’re not making an irrevocable mistake.

Q&A: Social Security benefits for spouses can pump up household income

Dear Liz: I have a friend who has a selfish, controlling husband. When talking with her recently, she told me she got only $300 a month from Social Security based on her work history while her husband gets $1,800. I told her she should be getting $900, half of his monthly amount, as a spousal benefit. I guess he thought if she got more it would reduce his check. I told her the $900 would be in addition to the $1,800 he gets.

She has been collecting her smaller benefit for seven or eight years. Does she have any recourse? I doubt he would take her to the Social Security office but maybe her daughter would.

Answer: It sounds like the husband’s greed has cost this household tens of thousands of dollars in lost benefits.

Spousal benefits (and divorced spousal benefits) do not reduce the primary worker’s check. This benefit, as you correctly told your friend, is available in addition to what her husband gets. Spousal and divorced spousal benefits can be up to half of the primary worker’s benefit. The amount that spouses and divorced spouses get is reduced if they start benefits before their own full retirement ages.

Your friend can’t get back the years of benefits she missed out on, but she should ask the Social Security Administration to switch her to the larger benefit. She can contact the administration at 1-800-772-1213.

The death of a student loan co-signer could have financial ramifications for the borrower. (Colleen Riemer / For The Times)

Q&A: When a government pension doesn’t reduce Social Security benefits

Dear Liz: I have contributed to Social Security for 40 years and have no government pension. My husband selected a reduced teacher’s pension so I would receive that same amount should he predecease me. Will my Social Security be reduced in this scenario?

Answer: No. The provisions that may reduce Social Security payments such as the government pension offset and the windfall elimination provision apply only to the person receiving the pension, not the spouse. If he dies first, your income would remain the same. If you die first, his survivor’s benefit from Social Security could be reduced or eliminated.

Q&A: Understanding Social Security benefits

Dear Liz: I am 62. My friend (also 62) is considering when to take Social Security. She understands, from reading a finance book, that Social Security payments change only at 62, 66 and 70. She thinks if you don’t start at 62 when your benefit is, for example, $1,000, that it will stay $1,000 until age 66 when it bumps up to $1,400, or whatever. I thought that each month you delay would increase the payment you would receive. So if you get $1,000 at 62, you would get $1,005 at 62 and one month, $1,011 at 62 and two months, and so on. The Social Security site seems to support me. Can you clear this up for us?

Answer: You are correct. Your friend either misunderstood what she read or was unfortunate enough to find an author who didn’t know how Social Security works.

There are three important ages with Social Security: 62, the earliest you can begin retirement or spousal benefits; your full retirement age, which is currently 66 and rising to 67 for people born in 1960 and later; and 70, when your benefit maxes out.

Full retirement age is an important inflection point. Instead of having your checks reduced for an early start, you can begin earning delayed retirement credits that can boost your benefit by two-thirds of 1% each month, or 8% per year.

Full retirement age also marks the point at which Social Security benefits no longer are reduced if a recipient continues to work. Prior to full retirement age, benefits are reduced by $1 for every $2 earned over a certain limit ($16,920 in 2017). Also, those who started Social Security early have the option of suspending their benefits at full retirement age to allow them to begin growing again by earning delayed retirement credits. Those who suspend benefits can restart them at any time. Otherwise, suspended benefits will automatically restart at age 70.

Q&A: The confusing balancing act between government pensions and Social Security benefits

Dear Liz: I am a public school teacher and plan to retire with 25 years of service. I had previously worked and paid into Social Security for about 20 years. My spouse has paid into Social Security for over 30 years. Will I be penalized because I have not paid Social Security taxes while I’ve been teaching? Should my wife die before me, will I get survivor benefits, or will the windfall elimination act take that away? It’s so confusing!

Answer: It is confusing, but you should understand that the rules about windfall elimination (along with a related provision, the government pension offset) are not designed to take away from you a benefit that others get. Rather, the rules are set up so that people who get government pensions — which are typically more generous than Social Security — don’t wind up with significantly more money from Social Security than those who paid into the system their entire working lives.

Here’s how that can happen. Social Security benefits are progressive, which means they’re designed to replace a higher percentage of a lower-earner’s income than that of a higher earner. If you don’t pay into the system for many years — because you’re in a job that provides a government pension instead — your annual earnings for Social Security would be reported as zeros in those years. Social Security is based on your 35 highest-earning years, so all those zeros would make it look like you earned a lower (often much lower) lifetime income than you actually did. Without any adjustments, you would wind up with a bigger check from Social Security than someone who earned the same income in the private sector and paid much more in Social Security taxes. It was that inequity that caused Congress to create the windfall elimination provision several decades ago.

People who earn government pensions also could wind up with significantly more money when a spouse dies. If a couple receives two Social Security checks, the survivor gets the larger of the two when a spouse dies. The household doesn’t continue to receive both checks. Without the government pension offset, someone like you would get both a pension and a full survivor’s check. Again, that could leave you significantly better off than someone who had paid more into the system.

Q&A: Social Security survivor benefits

Dear Liz: I have been with my significant other for over 30 years. We have an adult son. My significant other has a much larger Social Security benefit than I will have when it’s time for me to retire. I understand that if we were to marry and something happened to him, I would receive his benefit. But the law on Social Security is confusing. It says you have to be married several years to collect your spouse’s benefit unless you have a child. If we were married soon, would I be eligible for his benefits if something happened to him or would we have to be married for many years?

Answer: Social Security benefits can be confusing, but you don’t have to be married for many years to receive benefits.

To qualify for survivor benefits, you typically must have been married for at least nine months. To qualify for spousal benefits, you generally have to be married a year. If you have a natural child together and that child is a minor, the one-year requirement for spousal benefits is waived.

Survivor benefits are what you get when a higher-earning spouse dies. The benefit is 100% of what the deceased spouse received (or earned, if he hasn’t started benefits), but the amount is reduced if you as the surviving spouse begin benefits before your own full retirement age. The current full retirement age is 66 and will rise to 67 for people born in 1960 and later.

Spousal benefits are what you can receive while a spouse is still alive. This benefit is typically equal to half that spouse’s benefit and is reduced to reflect early starts.

You’ll need a longer marriage to get benefits should you divorce. The marriage must have lasted 10 years, and you must not be currently remarried to receive divorced spousal benefits based on your ex’s work record. For divorced survivor benefits, the marriage also must have lasted 10 years but you’re allowed to remarry at age 60 or later.