Ask Liz Weston

Get smart with your money

Retirement

64 and broke: what now?

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Dear Liz: I’m 64 and lost my last full-time job a year ago. I have since exhausted my unemployment benefits and been on and off food stamps. (I’m waiting to get back on them right now because my temporary-to-permanent job didn’t become permanent after all.) Fortunately I almost never need to go to a doctor, or if I do, I don’t know that I do and can’t afford to find out. I have about $3,000 in emergency savings, and my IRA is about $15,000. I was fortunate enough to sell a home in Hawaii 20 years ago, but I managed to run through all the money. My income when I was working full time was only $26,000 a year. I don’t know what to do, and I don’t know why I listen to all these financial programs that seem to target twentysomethings or people with retirement savings and comfortable incomes. They do not speak to my situation. My priority isn’t saving for retirement. It’s paying the bills.

Answer: Financial programs are, at least to some extent, concerned about the entertainment value of their programming. They often focus on people who fit their audience demographics and whose problems have satisfying solutions. That’s why the people featured tend to be younger or to have resources, because those are the ones who typically can recover from past mistakes and get their finances on track.

When people have no income, there’s not much financial advice to give. And when they’re in their 60s and have virtually no retirement savings, there’s no way to “catch up.”

That doesn’t mean your situation is hopeless, but it does mean you’ll have to hustle to stay afloat.

Finding a full-time job at this point is a long shot, so part-time work and Social Security probably will provide your income in the coming years. Social Security might replace as much as 40% of your previous low income (the replacement rate is lower for higher earners), but that still leaves you with a substantial gap to fill.

Ideally, you would hold out until age 66 before applying so you can get your full Social Security benefit. You’re eligible for benefits now, but your checks will be permanently reduced if you start early and your earnings could potentially reduce your check further under the earnings test (which you can learn more about at http://www.ssa.gov/oact/cola/rtea.html). The benefits that are withheld aren’t lost, because at full retirement age your monthly check would be increased to account for the withholdings. You’ll have to balance whether those disadvantages outweigh the upside of starting a guaranteed income now.

By the way, if you’ve ever been married and the marriage lasted at least 10 years, you may qualify for spousal or survivor benefits (even if the marriage ended in divorce) that could exceed the benefit you’ve earned on your own record. You can discuss your options by calling the Social Security Administration at (800) 772-1213.

You’ll need to look for ways to reduce your expenses so that you can get by on whatever income you receive. If you qualify, the federal Section 8 program could help pay for housing (start at Benefits.gov to see what programs are available). Some of the other ways to reduce housing costs — the biggest expense for most people — include getting a roommate, becoming a live-in caregiver for an older person or a family with kids, or becoming an apartment manager or the caretaker of a property.

At 65, you’ll qualify for Medicare. Although this government health insurance program for older Americans doesn’t cover everything, you will have access to healthcare again.

Spousal vs. survivor benefits: the key differences

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Dear Liz: I am 66 years old. When I was 60, my husband of 42 years died. He was a banker with more than 40 years of work history at a good income level. I remarried a year later. When I was 62, I was downsized and took early Social Security benefits based on my first husband’s earnings record. This amounts to about $2,000 a month. It would have been about $2,500 at full retirement age (66) and about $3,000 at age 70. I was not advised about survivor’s benefits at all or about any variance of survivor’s benefits versus Social Security based on my deceased husband’s earnings. Do you think I would have gotten a bigger benefit amount if I had taken survivor’s benefits at age 62?

Answer: No, because survivor’s benefits are what you’re getting.

Both spousal benefits and survivor’s benefits are based on the earnings record of the other person in a couple (whom we’ll call the “primary earner”). The maximum spousal check is 50% of the primary worker’s benefit. As with other Social Security benefits, the amount you get is permanently discounted if you apply before your own full retirement age.

Spousal benefits are available to current and former spouses, although former spouses must have been married for at least 10 years to the primary earner and must be currently single. (In other words, you can’t have remarried, unless that marriage has ended as well.)

Survivor’s benefits, on the other hand, can be up to 100% of the primary worker’s benefit. Survivor’s benefits based on a deceased spouse’s earnings record are not available to those who remarry before age 60, but can be claimed by those who remarry after that point.

Since the biggest Social Security benefit is around $2,500 a month and you’ve remarried, it’s clear that what you’re getting is the survivor’s benefit, discounted because you applied early.

Missed deadline could limit inherited Roth IRA’s benefits

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Dear Liz: I inherited my brother’s Roth IRA about three years ago. I find it hard to get any information about non-spousal inherited Roths. Can you tell me more about this type of Roth IRA?

Answer: It may be unfortunate that you didn’t ask sooner.

When a spouse inherits a Roth IRA, he can roll it into his own Roth IRA, and it’s as if he or she was the owner of the inherited funds all along. There’s no minimum distribution requirement, so the money can continue to grow.

If you’re not a spouse, you have the option of transferring it into an account titled as an inherited Roth IRA. You also have the option of taking distributions over your lifetime — which means keeping the bulk of the money growing for you tax-free — but to do that you must begin taking required minimum distributions by Dec. 31 of the year after the year in which the owner died.

If you didn’t start these required distributions on time, you have to withdraw all the assets in the account by Dec. 31 of the fifth year after the year your brother died, said Mark Luscombe, principal analyst for CCH Tax & Accounting North America. You won’t have to pay taxes on this withdrawal, but it would have been better to let the money continue to grow tax-free in the account.

Maximizing Social Security benefits requires some patience

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Dear Liz: I am 65 and recently visited our local Social Security office to apply for spousal benefits. (My wife, who is also 65, applied for her own benefit last year.) I wanted to get the spousal benefit, even if the amount is discounted, so I can let my own Social Security benefit grow. The Social Security office manager advised us that I cannot claim spousal benefits until my full retirement age. You said in a recent column that I can. Who is correct?

Answer: You can apply for spousal benefits before your own full retirement age. But doing so means you’re giving up the option of switching later to your own benefit. The office manager gave you correct information, based on your goal. If you want the choice of letting your own benefit grow, you must wait until your full retirement age (66) to apply for spousal benefits.

Divorced retiree entitled to spousal Social Security benefits

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Dear Liz: My daughter, 63, has been recently amicably divorced and receives a small alimony ($1,000). Her ex-husband of 30 years is a doctor who just retired. Is she entitled to part of his Social Security? Neither has remarried.

Answer: Because they were married for more than 10 years, your daughter should qualify for spousal benefits, which can equal up to half of her ex’s benefit at his full retirement age. That amount would be permanently discounted if she applies before her own full retirement age (which is 66).

The ex’s marital status doesn’t matter, although your daughter’s does. If she remarries, she will lose access to spousal benefits as a divorced spouse. This is just one of the ways that spousal benefits differ from survivor’s benefits, which are based on 100% of the earner’s benefit and which widows and widowers can receive even if they remarry after age 60.