Ask Liz Weston

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Social Security

Q&A: Should a spouse start Social Security now or later?

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Dear Liz: I waited until age 70 to start collecting Social Security. My wife turns 65 this year so her full retirement age is 67. Can she start collecting Social Security benefits now based on my benefit or should we wait until her full retirement age?

Answer: If she applies for Social Security now, she would be “deemed” to be applying for both her own benefit and her spousal benefit and given the larger of the two. She would not be allowed to switch to the other benefit later.

Most people are better off waiting at least until their full retirement age to apply, and many will maximize their lifetime benefits by delaying until age 70. Her mileage may vary, of course, so it’s worth using a Social Security claiming calculator and consider getting advice from an objective source, such as a fee-only financial advisor.

Q&A: Timing a Social Security application

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Dear Liz: I know you work to maximize people’s money. I had a thought about the quality of life with Social Security. I took it at 65, which was then full retirement age. I was fully employed and did not need it to live. However, the extra money allowed us the opportunity to travel to all seven continents, help our kids with debts and down payments, and generally enjoy things with the extra cash. Now the full retirement age is 67, so there are fewer years between full retirement age and when benefits max out at 70. But the difference could still be enough for that motor home or world cruise.

Answer: All financial planning requires a balance between current and future spending. If you spend too much in the early years, you may not have enough to make it through the later ones. Retirement planning is further complicated by the fact that we don’t know how long we’ll live or how our health will hold up. We can delay spending so long that we’re no longer able to do the things we want to do, such as travel.

Still, the fact remains that when one spouse dies, one Social Security check goes away. That can lead to a devastating drop in income for the survivor. Because the survivor receives the larger of the two benefits, and may have to live on that amount for years, it almost always makes sense for the higher earner to delay filing as long as possible.

Q&A: Retirement planning for late starters

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Dear Liz: I am in my late 50s, married and woefully unprepared financially for my later years. I was a stay-at-home mom for many years. I now work almost full time but my employer has no 401(k) or profit sharing or really any benefits at all. I just started putting $8,000 (the catch-up amount) into my Roth IRA. What else can I do now to make up for lost time?

Answer: You can’t really make up for the decades of compounded returns you missed by not investing earlier. But you can make some smart decisions now for a more comfortable retirement.

Your most important decision likely will be how you and your spouse claim Social Security. Your spouse almost certainly should wait to claim until age 70 to maximize their lifetime benefit and to lock in the highest possible survivor benefit. If you outlive your spouse, this benefit could comprise the bulk of your income. Consider reading “Get What’s Yours,” a book about Social Security claiming strategies by Laurence J. Kotlikoff and Philip Moeller. Just make sure to get the updated version that was published in 2016, since earlier versions refer to strategies that Congress eliminated.

Delaying retirement is another powerful way to compensate for a late start, since you’ll have more years to work and save. Consider finding an employer who will help you secure your future by providing a 401(k) with a generous match. You’ll be able to contribute substantially more to a workplace retirement plan than you would to a Roth.

You and your spouse should consider hiring a fee-only financial planner to review your situation and offer customized advice.

Q&A: Survivor benefits from spouse’s higher Social Security check

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Dear Liz: My Social Security is much higher than my husband’s. He started taking his at 62 and I started at my full retirement age of 67. If I die before him, can he start taking my Social Security at some reduced rate? My current payment before any Medicare premiums is about $3,700 and his is about $1,700.

Answer: If your husband has reached his own full retirement age by the time you die, his survivor benefit would equal 100% of what you were receiving. The survivor benefit would not be reduced because he started his own benefit early.

If you should die before he reaches full retirement age and he starts survivor benefits, the amount would be reduced for the early start.

Q&A: Required withdrawals could change Social Security taxation

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Dear Liz: Is it true that when you start your required minimum distributions from 401(k) and 403(b) plans, you give up your monthly Social Security payment? I plan to start RMDs next year at age 71 thinking I will get less money for more years.

Answer: Your withdrawals from retirement plans won’t reduce your Social Security directly. The additional income could, however, make more of your Social Security payment taxable.

Taxes on Social Security are based on something called “combined income,” which is your adjusted gross income plus any nontaxable interest you earned plus half of your Social Security income. If you’re single and your combined income is between $25,000 and $34,000, then up to half of your Social Security payment may be taxable. If combined income is over $34,000, up to 85% may be taxable. For people who are married filing jointly, the bracket for up to 50% taxation is $32,000 and $44,000 while combined income over $44,000 can trigger up to 85% taxation.

To be clear, this does not mean that 50% or more of your benefit goes to taxes. It means that 50% or more of your benefit may be subject to your income tax bracket.

Q&A: Spousal and survivor benefits operate by different rules

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Dear Liz: I believe you provided bad information to the woman inquiring about Social Security spousal benefits for her husband.

You suggested to her that since she was the higher income spouse, that she wait until age 70 to maximize the benefit her husband could receive. I used to think that was the case as well, and was planning my Social Security start date accordingly.

However, a few months ago I found out that this is not true. The maximum spousal support is based on the full retirement age of the spouse or deceased spouse, not the maximum amount received if the deceased spouse waits longer to take Social Security. This is true for both spousal benefits when the higher wage earner is alive and for survivor benefits. After finding this information out, I filed to start receiving immediately, since I’m at my full retirement age.

Answer: Many people confuse the rules for spousal and survivor benefits, as you’ve done. This is why it can be so important to discuss your claiming strategy with an expert before you make a decision that stunts the survivor’s future income.

Spousal benefits are available when the higher earner is still alive. Spousal benefits can be up to 50% of the higher earner’s benefit at full retirement age. Spousal benefits don’t get bigger if the higher earner delays filing beyond his or her full retirement age, and they don’t shrink if the higher earner applies before full retirement age. (If the spouse applies before his or her own retirement age, however, the spousal benefit typically will be reduced because of the early start.)

Survivor benefits are a different story. These are the benefits that kick in once the higher earner has died. Survivor benefits are up to 100% of what the higher earner was actually receiving. In other words, survivor benefits can be stunted if the higher earner starts a retirement benefit early and will get bigger if the higher earner delays applying.

This is why financial advisors often recommend the higher earner wait to file until their benefit maxes out at age 70. Not only is the higher earner likely to maximize their lifetime benefit by waiting, but the delay also increases the checks the survivor will receive.

If you regret your decision to start benefits, you could opt to suspend your application. You wouldn’t get back the delayed retirement credits you lost after starting your benefit, but those credits would be applied going forward so your benefit amount could continue to grow.

Another option, if it’s been less than 12 months since you applied, is to withdraw your application. This would require paying back all the benefits you’ve received so far, but it would reset the clock so that you could earn all the delayed retirement credits you missed.