Thursday’s need-to-know money news

hidden-fees1Today’s top story: Scams to watch out for. Also in the news: Understanding Social Security spousal benefits after divorce, fixing a critical 401(k) flaw, and new airline luggage fees.

Scams Called ‘Worst’ of Consumers’ Top 10 Complaints
Don’t fall for them.

Divorce Doesn’t Preclude Social Security Spousal Benefits
Understanding the complicated rules.

How fix a critical flaw in 401(k) plans
Adjusting your retirement savings.

Some Airlines Have Rolled Out a New Luggage Fee
Pack appropriately.

Q&A: Don’t miss out on spousal Social Security benefits

Dear Liz: How far back can Social Security go for someone who did not know to apply for spousal benefits? I’m 69, still working and did not know I was eligible for spousal benefits from my retired wife when I turned 66. Social Security is indicating six months of retroactive benefits is the maximum.

Answer: Unfortunately, that’s correct. You’ve missed out on at least two and a half years’ worth of spousal benefits based on your wife’s work record.

You still can file a restricted application for spousal benefits only and get a lump sum payment for the previous six months. You also still have the option to switch to your own benefits when they max out at age 70. These strategies aren’t available to younger people because Congress changed the rules last year.

Social Security rules can be complex, and the penalty for misunderstanding or missing deadlines can be huge. “Get What’s Yours,” a book about Social Security-claiming strategies that recently was updated, should be required reading for anyone approaching retirement age.

Q&A: Social Security divorced spousal benefits

Dear Liz: A friend was told by Social Security that she could not collect spousal benefits on her ex-husband’s work record because she did not have his Social Security number. How can I help her find it?

Answer: Your friend may have run into a new Social Security employee, or at least one who is not well-informed. Social Security says on its website that people who qualify for divorced spousal benefits do not need their exes’ Social Security number as long as they can provide enough identifying information for the agency to locate his record. She does need to have a marriage certificate and divorce decree along with her own birth certificate.

To qualify for divorced spousal benefits, the marriage must have lasted 10 years and your friend must currently be unmarried

Q&A: Social Security spousal benefit

Dear Liz: I am 57 and my husband is 60. I will have a bigger Social Security benefit than he will. He plans to retire at 65 when he will take his own retirement benefit. I will file and suspend at my full retirement age (66 and 6 months), at which time he can file for spousal benefits. Then at 70, I can take my benefits. Is this correct? Or is the spousal benefit half of what I will get, which would be less than his reduced benefit anyway?

Answer: The spousal benefit is never more than half the primary earner’s benefit. If that would be less than his own benefit, then it wouldn’t make much sense for your husband to switch from his own check.

In any case, Congress is eliminating the option to file and suspend in order to trigger a spousal benefit. Since you must have reached your own full retirement age to file and suspend, and you won’t have done so by the April 29 deadline, filing and suspending is off the table for you.

It still makes sense for you to delay starting Social Security as long as possible, because you’re the higher earner. When one of you dies, the other will have to get by on a single check, so it makes sense to ensure that the survivor’s benefit is as large as possible.

Q&A: Understanding pension vs Social Security

Dear Liz: I recently retired as a lifelong federal employee after 40 years of service. I participated under the old Civil Service Retirement System. My pension is about $85,000 per year. I will be 64 this year.

Twenty years ago, my ex-wife and I divorced after 17 years of marriage. Friends of mine have indicated that because we were married more than 10 years, I am eligible for a spousal Social Security benefit. I thought because I was covered under the CSRS, any Social Security received would be offset against the monthly pension payment.

I think this is due to the government pension offset, which has been in effect since 1983. My Social Security benefit would in effect be zero. Is my understanding accurate?

Answer: Yes. If you’re receiving a government pension based on work for which you didn’t pay Social Security taxes, then the pension offset typically reduces the amount of any so-called dependent benefits you might receive by two-thirds of the amount of that pension.

That reduction can wipe out any spousal or survivor benefit you might otherwise get.

Before the offset, people with government pensions that didn’t pay into Social Security could wind up better off than people who had paid into the system their entire working lives.
Those who paid into the system would get the larger of the checks to which they were entitled — either the dependent check or their own — while those who had pensions outside the Social Security system could get both their own benefit and dependent benefits.

There is a way you could have received a spousal benefit, and that’s if you had put off receiving your pension, said Laurence Kotlikoff, coauthor of “Get What’s Yours: The Secrets to Maxing Out Your Social Security.”

If putting off the pension would have increased the amount you received, it could have made sense to do so and take the spousal benefit in the meantime.

There are various other exceptions to these rules, so you should check out the government pension offset information available at the Social Security site, www.ssa.gov.

Q&A: Social Security spousal benefits and divorce

Dear Liz: My former husband is 11 years older than I am, and we were married for 15 years.

I am 54 and have never remarried. When I turn 62, can I claim spousal benefits based on his work record because he will be past full retirement age? Or do I have to be at my own full retirement age of 67 before I can claim the divorced benefit?

I was thinking that I could start claiming spousal benefits at 62 and then wait until I am 70 (letting my benefit grow). At that point, we can see which benefit is larger — half of his benefit or my full benefit. He has made much more money than I have through the years, but he has also been unemployed off and on while I have been employed consistently.

Answer: You can claim divorced spousal benefits as early as age 62 long as you remain unmarried and your marriage lasted at least 10 years.

But you lose the option to switch from a spousal benefit to your own benefit if you start Social Security before your own full retirement age.

So if your plan is to get the maximum benefit, it’s important to wait until you turn 67 to apply. At that point, you can file a restricted application for spousal benefits only and receive an amount equal to half of your ex’s benefit while letting your own grow a guaranteed 8% each year until age 70, when your benefit maxes out.

Q&A: Social Security spousal benefits

Dear Liz: Can you please explain Social Security spousal benefits? Is there a certain length of time a husband and wife need to have been married that will qualify the spouse to get the spousal benefit after divorce? For example, if a couple has been married for 20 years and then divorces, will the spouse still be entitled to collect the spousal benefit, or is the spousal benefit only for those who stay married?

Answer: Spousal benefits are available to divorced spouses as long as the marriage lasted at least 10 years. But you have to be unmarried to get benefits based on an ex’s work record. If you remarry, those benefits end.

The amount you get as a spouse or divorced spouse can equal up to half of what the primary earner gets. As with other Social Security benefits, however, your checks typically will be reduced if you start benefits before your own full retirement age. Starting spousal benefits early also precludes you from later switching to your own retirement benefit, even if that benefit would be larger.