June 24, 2019 By

Q&A: Don’t fall for Social Security phone scams

Dear Liz: I have just received a phone call advising me that my Social Security number “is about to be suspended” and that for help, I should call a certain number. Is this legitimate?

Answer: No. Your Social Security number can’t be locked or suspended or any of the other dire-sounding consequences these robo-callers threaten. If you did call the number, the scam artist on the other end would try to trick you into revealing personal information or convince you to wire money or buy gift cards, which they can quickly exchange (or “wash”) to erase their trails. People lost $10 million to these Social Security scams last year, according to the Federal Trade Commission.

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June 17, 2019 By

Q&A: Working after retirement

Dear Liz: My profession was one of the hardest hit by the Great Recession. I retired by default when I turned 62 in 2012. My Social Security payment was reduced because I started it early. I’ve found it necessary to return to the workforce part time to move beyond just surviving and have some discretionary funds. What does my employment mean for future Social Security payments?

Answer: You’re past your “full retirement age” of 66, so you no longer face the earnings test that can reduce your Social Security benefit by $1 for every $2 you earn over a certain limit ($17,640 in 2019).

Sometimes returning to work — or continuing to work after you start receiving Social Security — can increase your benefit if you had some low- or no-wage years in your work history. Social Security uses your 35 highest-earning years to calculate your checks. The amounts are adjusted to reflect changes in average wages, which is somewhat similar to an inflation adjustment. If you should earn more this year than you did in one of those previous years, your current earnings would replace that year’s earnings in the calculation and could increase your check.

Another way to boost your benefit if you’ve reached full retirement age but are not yet 70 is to suspend it. That means going without checks for a while, but your benefit earns delayed retirement credits that can increase the amount by 2/3 of 1% each month, or 8% a year. It may not be practical for you to do this: You probably need the money, and you could be too close to 70 to get much benefit. But perhaps that’s not the case for someone else reading this.

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May 20, 2019 By

Q&A: Bad Social Security math

Dear Liz: Regarding when to begin receiving Social Security payments: I would think that people should begin taking payments as early as possible if they can invest it rather than spend it, as a lot of money is “left on the table” between ages, say, 62 and 70. Your thoughts?

Answer: That argument was more compelling a few decades ago when you could get a 7% or 8% return on an FDIC-insured certificate of deposit. These days, there’s no investment that offers a guaranteed return as high as what you’d get from delaying the start of Social Security.

The “take it early and invest” approach also ignores the longevity insurance aspect of Social Security benefits. Most people face a real risk of outliving their savings, which could leave them relying on Social Security for most if not all of their income. Maximizing Social Security benefits by delaying your application can help you live more comfortably, should that happen.

Also, starting early can cause harm to whichever spouse survives the other. When one spouse dies, one of the two Social Security checks the couple was receiving will stop. The remaining spouse will get only the larger of the two checks, which is known as a survivor’s benefit. Maximizing that benefit can help ease the shock of going from two checks to one, so financial planners generally recommend that the higher earner in a couple delay his or her application if possible.

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May 13, 2019 By

Q&A: Inflation and Social Security

Dear Liz: Every time someone asks a question about when to start taking Social Security, all you financial advisers make your calculations based on the 7% to 8% annual increase you get by delaying between ages 62 and 70. What you never mention is that once you start getting Social Security, you also start getting the cost of living annual adjustments. I started at 63 and my monthly check has already gone up 5% and it’s compounded. In this era of higher inflation, that pushes out the break-even point into an age in the late eighties. You need to add that into your advice.

Answer: Surveys have shown that most people are happy with their decision to start Social Security, even when they started it early. Perhaps they don’t know what they’re missing.

The researchers who have studied Social Security claiming strategies have factored inflation into the mix, as well as longevity, investment returns and taxes (there’s something known as the “tax torpedo,” which can jack up marginal tax rates for middle-income Social Security recipients). The assumptions can differ, but the results don’t: The majority of people benefit from delaying. In today’s low-interest-rate environment, many researchers say the vast majority are better off.

Another factor the researchers consider — and that many early starters don’t — is what happens to the surviving spouse. When one member of a married couple dies, one of their two Social Security checks goes away and the survivor has to get by on a single check, which will be the larger of the two. That’s why it’s so important that the higher earner in a couple try to delay as long as possible, because it will boost the check for the person left behind.

That doesn’t mean single people should start early, however. Single people tend to have less savings and wealth than married people; they’re more likely to be poor than married couples, and single women have a higher poverty rate than single men. If you wind up getting most if not all your income from Social Security, you’ll want that check to be as large as possible.

As for your phrase, “this era of higher inflation” — yes, the 2.8% cost-of-living boost was higher than the 2% increase of the prior year. The year before that, the inflation adjustment was close to zero, and it was actually zero in 2010, 2011 and 2016. Annual adjustments over the last 20 years have averaged just a little over 2%. That’s not a lot to get excited about.

Filed Under: Q&A, Social Security Tagged With: ,
April 29, 2019 By

Q&A: His Social Security claiming decision could use a second opinion

Dear Liz: I retired in 2013 at 55. I purchased an annuity, which will pay $1,000 a month for life for me and my wife as well. That starts in February 2020. My retirement fund, meanwhile, was rolled into an IRA and I’m withdrawing about 10% of that annually. The balance is about $650,000.

My advisor wants me to start my Social Security at age 62. I would receive $1,800 a month and could reduce my withdrawal rate to 4%. I’ve also been told, however, that it would be better to wait until my full retirement age (66 and 6 months) or 70, when my benefit maxes out. At full retirement age, my monthly benefit would be about $2,500, and at 70, it would be $3,000.

I’m not sure what to do. My wife will be retiring next year and her monthly pension will be about $3,700. We still owe on our house and have other debt as well. What’s my best option?

Answer: There’s a lot of research showing that single people and “primary earners” — the higher wage earner in a married couple — are better off delaying the start of their Social Security benefits. (The article “Understanding Social Security Claiming Decisions Using Survey Evidence” in the November 2018 issue of the Journal of Financial Planning does a good job of summarizing the research.)

Longer life expectancies mean most people will live beyond the “break even” point at which the larger benefit more than makes up for the checks they pass up in the early years. These larger checks are a kind of longevity insurance, as well. The longer you live, the more likely you will have spent your other resources and wind up depending on your Social Security income to live.

Having the primary earner delay is especially important for married couples because at the first death the number of checks the household receives will drop from two to one. Because the survivor receives the larger of the two checks, it’s usually wise to make that check as large as possible.

The benefits of delay are so substantial — one study shows that the sustainable standard of living is 30% higher for people who start at 66 rather than 62 — that advisors often recommend tapping other resources, including retirement funds, if it enables people to put off starting their checks.

Your situation may be a bit different, though because you mention that your wife has a pension. If the pension is from a job that did not pay into Social Security, it would affect her ability to receive survivor’s benefits from the Social Security system. Something known as the government pension offset would reduce her survivor check by two-thirds of the amount of her pension, which could eliminate her survivor benefit entirely. If that’s the case, it wouldn’t be as crucial for you to delay.

Given how much is at stake, though, you might want to get a second opinion from another advisor who can review the specifics of your situation.

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April 15, 2019 By

Q&A: Don’t make this Social Security mistake when planning retirement

Dear Liz: I’m 64, single, and was diagnosed with Type 2 diabetes. I still work full time but due to my health, it’s getting harder to do. I have a 401(k) from this job. I’m just wondering how smart would it be, all things considered, to retire now and collect Social Security since the chances of my living another two to four years don’t seem high. What are your thoughts?

Answer: A large body of research shows most people are better off delaying Social Security. Your situation may be one of the exceptions, or it may not be.

A man age 65 in the U.S. can expect to live, on average, to 84, according to the Social Security Administration. A woman age 65 can expect to live, on average, to nearly 87. That’s beyond the typical “break even” point, where the benefits of larger Social Security checks for life outweigh the cost of missed checks from not claiming earlier.

But most people shouldn’t base their claiming strategy on break-even points alone. Dying too soon and not being able to get the maximum payout from Social Security is certainly a risk. But a much bigger risk is longevity. The longer you live, the higher the odds of running short of money and having to get by on Social Security alone.

Those risks are greater than many people think. A 65-year-old man has a 20% chance of living to age 90, while a 65-year-old woman has a 32% chance, according to the Society of Actuaries.

If the man and woman are married, there’s a 45% chance that one will live to age 90. That’s why it’s so important for the higher earner in a marriage to put off claiming as long as possible, since doing so will generate a bigger check for the survivor to live on. (Single people also are exhorted to delay claiming, since they will be living on just one check, rather than two.)

People with more education and higher incomes tend to live longer than average, while those in poor health obviously can have shorter life expectancies. A terminal diagnosis certainly changes the math. But you didn’t say why you expect to live only two to four more years. Various studies have estimated that Type 2 diabetes could shave five to 10 years off the typical life expectancy, which would still have you living well into your 70s. If you went through your savings as if you were going to live four years but wound up living 14, that last decade could be pretty uncomfortable.

None of this means you can’t retire now, but like everyone else, you should balance the desire to make the most of the time you have left with the risk that you may live longer than you think. A fee-only financial planner could help you think through the options and run various financial scenarios so you can see how your decisions could play out over time.

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April 1, 2019 By

Q&A: Social Security spousal benefits

Dear Liz: My husband is 78 and receives a large Social Security check every month. I will be 66 in two years. Should I take my benefit then — we may need it — and then switch to his benefit if he dies before I do? His benefit will be much higher than mine. I see that some of your older posted responses mention a spousal benefit. I think this is no longer offered as of a few years ago — is that correct?

Answer: Spousal benefits, which can be up to 50% of the primary earner’s benefit, are still very much available. What was eliminated for people born on or after Jan. 2, 1954, was the option of filing a restricted application for spousal benefits only, and then switching to one’s own retirement benefit later.

When you apply for Social Security, your spousal benefit is compared to your own benefit and you’ll get the larger of the two. When one of you dies, the survivor will get only one check, which will be the larger of the two you received as a couple.

Filed Under: Q&A, Social Security
March 18, 2019 By

Q&A: Social Security’s widespread benefits

Dear Liz: I encourage you to educate your readers about the real intention of Social Security, as well as the real problem facing it. Social Security was designed as a safety net to keep the elderly, disabled and orphaned from abject poverty. It was not intended to provide decades of benefits to individuals who are not at risk of living in poverty. It does no good to further the inaccurate notion that everyone is entitled to “their share” from a social safety net meant for the poor.

Answer: You’ve misunderstood Social Security’s structure and its history.

Social Security was deliberately created as a social insurance program, not as welfare assistance. Workers fund the system themselves through payroll taxes. They have to pay into the system a certain number of years to qualify for benefits. In return, they receive inflation-adjusted income that they can’t outlive and that isn’t vulnerable to market downturns.

Social Security benefits are progressive, which means they’re designed to replace more income for a lower-paid worker than a higher-paid one. But people who pay more into the system get larger benefits than those who pay less, and benefits are not means-tested.

Programs for the poor tend to be easy targets for politicians, but Social Security’s universal nature contributes to its widespread support. More than 1 out of every 6 U.S. residents, or about 62 million people, collected Social Security benefits in June 2018.

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March 11, 2019 By

Q&A: Get help claiming Social Security

Dear Liz: I read your column about the disabled woman who was asking about survivor benefits. I am 60 and my husband died when he was 65, but he was not receiving Social Security. We both paid into Social Security for our entire working careers and maxed out every year. I have been told that I can receive his benefits when I am 65. I wonder why I cannot collect his benefits now.

Answer: You can, but you may not want to if you’re still working and earning the kind of six-figure income needed to “max out” your Social Security taxes.

People who start Social Security benefits early are subject to an earnings test that withholds $1 in benefits for every $2 they earn above a certain amount, which in 2019 is $17,640. Social Security has a calculator to help you determine the effect on your benefit at https://www.ssa.gov/oact/cola/RTeffect.html. Your survivor’s benefit also will be reduced if you start it before your own full retirement age, which in your case is either 66 years and 8 months (if you were born in 1958) or 66 years and 10 months (if you were born in 1959).

Once you’ve reached full retirement age, however, the earnings test goes away, as does the reduction for starting benefits early. At that point, you could apply for full survivor benefits and leave your own retirement benefit alone to grow 8% each year until it maxes out at age 70. You can continue to work and receive benefits without facing any reductions.

Social Security can be astoundingly complex, and claiming decisions can be affected by a number of factors. AARP has a free Social Security claiming calculator, but it can’t deal with some situations such as survivor’s benefits, child benefits (for retirement-age people who have minor children) or the offsets associated with pensions that don’t pay into Social Security. For those, you would need to pay about $40 to use a more sophisticated calculator such as the one at MaximizeMySocialSecurity.com, or to consult a fee-only financial planner with experience in this area.

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March 4, 2019 By

Q&A: Separated spouse is entitled to survivor benefits

Dear Liz: I am a 57-year-old disabled woman whose only income is $500 a month in Supplemental Security Income. I was legally separated from my husband when he died at age 59. Can I collect Social Security from his account?

Answer: Most likely, yes.

To generate a survivor’s benefit, your husband would have had to pay into the Social Security system for a certain number of years. Younger people need to have worked fewer years than older ones to provide benefits for survivors, but no one needs to have paid in for more than 10 years.

Because your husband died before reaching retirement age, your survivor benefit would be based on what his retirement check would have been at his full retirement age (which would be 67, if he was born in 1960).

You could get 100% of that benefit if you wait until your own full retirement age to collect. Reduced benefits are typically available when a widow or widower turns 60. Survivors who are disabled can start benefits as early as age 50, if the disability started before the death or within seven years.

If your marriage had ended in divorce, you could still have qualified for survivor’s benefits as long as the marriage lasted at least 10 years. (If a marriage lasted that long and the ex is still alive, a divorced spouse can qualify for spousal benefits, which are up to half the ex’s benefit.)

With survivor benefits, you have the option of switching to your own retirement benefit later, if it’s larger, or of switching from your own benefit to a survivor’s benefit, should that be the better deal.

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