Ask Liz Weston

Get smart with your money

Social Security

Q&A: Social Security is insurance

By

Dear Liz: My wife was 69 at the time of her passing. She was still working and not collecting Social Security. I am 72, retired and collecting Social Security. When I spoke with Social Security, I was told that I cannot collect on my wife’s Social Security. All I qualify for is a $255 death benefit. I asked what happened to her money that was collected all these years; I was told it goes into a general fund. Is there anything I can get from my wife’s Social Security?

Answer: If your current benefit is larger than the survivor benefit you would get based on her work record, then no.

Your question illustrates two common misconceptions about Social Security.

Social Security is not a 401(k) or other retirement fund that you pay into over time and then draw from in retirement. Social Security is actually insurance. (Social Security’s formal name is Old-Age, Survivors, and Disability Insurance, or OASDI.) It’s a pay-as-you-go system where the payroll taxes collected from current workers pay for the benefits received by people who are retired or disabled and their dependents.

The other misconception is that survivors are qualified for additional benefits on top of their own. In fact, survivors get the larger of the two benefits a couple was receiving — not both. This is, unfortunately, often a surprise to widows and widowers who see their incomes plunge after their partners die.

Q&A: Social Security survivor benefits

By

Dear Liz: My beloved brother died recently. He was 70, retired and collecting Social Security. His husband, age 63, is still working. They had been married since 2008 but when he applied for survivor benefits, he was denied. Several in our friend group looked into this and the way we all read it, he should be entitled to survivor benefits. What are we not understanding?

Answer: Your brother-in-law wasn’t denied a survivor benefit, precisely. He just earns too much to receive one.

If your brother-in-law was born in 1960, his full retirement age is 67. People who apply for Social Security benefits before their full retirement age are subject to the earnings test, which reduces their benefit by $1 for every $2 they earn over a certain limit, which in 2023 is $21,240.

The earnings test will go away once he turns 67. At that point — or earlier, if he reduces his work hours and earnings sufficiently — he will have a choice between starting a survivor benefit and starting his own, with the option to switch later. If he’s earned a sizable benefit on his own work record, for example, it could make sense to start the survivor benefit and allow his own benefit to grow until it maxes out at age 70. A claiming strategies site, such as Maximize My Social Security or Social Security Solutions, can help him choose the right course, or he could consult a fee-only financial planner.

Q&A: When WEP doesn’t apply

By

Dear Liz: I am a retired police officer who worked for an organization that did not pay into Social Security or Medicare. During my career I worked side jobs and paid my own self-employment taxes to get my 40 quarters to qualify for Medicare once I reach age 65. I did have Social Security earnings for about eight years prior to my law enforcement career. My understanding is any Social Security I would otherwise be entitled to will be wiped out by the windfall elimination provision. The WEP calculator on Social Security’s website isn’t user friendly so I can’t tell if I will lose all or a portion of my Social Security to WEP.

Answer: Your own Social Security benefit won’t be wiped out. The windfall elimination provision can reduce your Social Security retirement benefit by up to half when you get a pension from a job that didn’t pay into Social Security.

By contrast, another provision called the government pension offset (GPO) can and often does eliminate Social Security benefits, but only those based on someone else’s work record, such as spousal or survivor benefits.

Also, you misunderstood how Medicare works. You need to work 40 quarters to qualify for a Social Security retirement benefit, but you can qualify for Medicare at age 65 as a U.S. citizen regardless of your work history.

Q&A: Social Security cost of living adjustments

By

Dear Liz: I am 67 and am delaying taking my Social Security until age 70 to take advantage of the 8% annual deferral. I was told by an individual at the Social Security office that I won’t get any inflation adjustments, such as the 8.7% increase for this year, and that people only receive the inflation adjustments if they’re actually receiving Social Security. Is that correct?

Answer: No. The Social Security Administration makes that clear in its two-page document, “Your Retirement Benefit: How It’s Figured.” Here’s what that document says verbatim:

“You’re eligible for cost-of-living benefit increases starting with the year you turn age 62. This is true even if you don’t get benefits until your full retirement age or even age 70. We add cost-of-living increases to your benefits beginning with the year you reach 62. Benefits are adjusted yearly to reflect the increase, if any, in the cost-of-living as measured by the Consumer Price Index.”

Your experience unfortunately isn’t unique. Other readers have reported getting misinformation or bad advice from Social Security reps. Social Security is a complicated system with many nuances, so it’s important to get a second opinion from a knowledgeable source, such as a fee-only financial planner, before making decisions regarding your benefits.

Q&A: 401(k) payouts and Social Security

By

Dear Liz: I was laid off from my job in late 2021 and at 62 was unable to find employment. After six months of unemployment benefits, I filed for Social Security. My 401(k) account from my previous employer was rolled into a traditional IRA. I also took a distribution to carry me through the months without unemployment and to repay a 401(k) loan I used as the downpayment on my home. I was taxed on the total amount of rollover funds, as well as on the distribution, which seems like I paid tax twice. All told, it looks like I made a lot of money in 2022. How will this affect my Social Security benefits going forward?

Answer: You don’t have to pay tax on the 401(k) funds that were rolled into the traditional IRA. If you’ve already done so, please consult a tax pro immediately about filing an amended return to get that money back.

You may have been confused by the 1099-R tax form issued by your 401(k) provider, which reported the entire amount that left your 401(k) account as a distribution. But only the amount that didn’t make it into the IRA is considered taxable.

The taxable distribution isn’t considered earned income that would trigger the earnings test. (The earnings test applies to people receiving Social Security before their full retirement age, currently ages 66 to 67. The test causes $1 to be withheld for every $2 earned over a certain limit, which is $21,240 in 2023.)

But distributions can cause more of your Social Security benefit to be taxable. Taxes on Social Security are based on a unique formula known as “combined income,” which includes your adjusted gross income plus any nontaxable interest and half your Social Security benefits.

If you’re a single filer and your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If your combined income is more than $34,000, up to 85% of your benefits may be taxable. Married couples filing jointly may have to pay income tax on up to 50% of benefits if their combined income is between $32,000 and $44,000. If their combined income is more than $44,000, they could owe tax on up to 85% of their benefits.

Keep in mind that you don’t lose 50% to 85% of your benefit to taxes. That’s the proportion that is subject to tax.

A tax pro can help you estimate the effect of future distributions and calculate how much you may need to withhold to avoid penalties.

Q&A: When Social Security isn’t enough

By

Dear Liz: I am 87, divorced for 45 years, never remarried. I applied for my 93-year-old former husband’s Social Security support and qualified. I was refused by the local Social Security office. I really don’t understand why. I am a COVID long-hauler and I get confused. I was a stay-at-home mom until my kids were in college, and my husband divorced me. My Social Security is not enough to support me, and I am seriously in debt. I am set up with Social Security to receive my share of my former husband’s Social Security at the time of his death. What am I doing wrong?

Answer: If your former husband is still alive, it’s possible that your current Social Security retirement benefit is larger than any benefit you would have gotten from his work record. Spousal and divorced spousal benefits are limited to 50% of the primary worker’s benefit at full retirement age.

Should he die, you could be eligible for a divorced survivor benefit, which is up to 100% of the amount he was receiving.

Rather than wait, though, you should consider talking to a bankruptcy attorney about your debt. Consider asking one of your kids or a financially savvy friend to come with you and take notes so you understand your options.