Q&A: Waiting to collect Social Security

Dear Liz: I understand your suggestion about waiting until you are 70 to apply for Social Security because you’ll get a larger amount. However, I applied at 62 and no matter how much more I would have received at 70, I would never recoup an amount equal to what I received. My husband chose to wait and died before he reached 70.

Answer: If your husband’s benefit was larger than your own, then his decision to delay was a real gift to you.

When one member of a couple dies, the survivor gets only the larger of the two Social Security benefits the couple used to receive. Losing one benefit can cause a sharp drop in the survivor’s income. That’s among the reasons why financial planners urge the higher earner to wait as long as possible: to maximize the benefit the survivor will have to live on for years or even decades.

If your husband had remained alive, then your early start could have been a mistake. Most people live past the “break even” point where the larger checks you could get from delaying more than outweighed the smaller checks you passed up in the meantime.

Q&A: A widow’s Social Security earnings problem

Dear Liz: My dear friend lost her husband a few years ago. The husband did something wrong with working and collecting Social Security, so they are now withholding her $2,000 monthly Social Security check, which is devastating to her. Can she be punished for what he did unbeknownst to her? She is stuck and doesn’t know what to do.

Answer: People who start Social Security before full retirement age face the earnings test, which reduces benefits by $1 for every $2 earned over a certain amount (in 2022, the amount is $19,560).

It sounds as though the husband didn’t properly notify Social Security about his earnings and the overpayment wasn’t discovered until after his death. Whenever Social Security is unable to recover an overpayment from someone, the agency can collect from anyone else receiving benefits on that person’s earnings record, said William Meyer, founder of Social Security Solutions, a benefits claiming site.

The letter notifying her about the overpayment would have included a section about her appeal rights. If the earnings information was incorrect, for example, she would have 60 days to appeal and supply the correct amount of his earnings.

She also can call the agency’s toll-free number, (800) 772-1213, and request that less be taken from each check. As long as the total owed is paid off within 36 months, the agency will comply, Meyer says. If she can’t afford to have the overpayment repaid within 36 months, she can request longer but she’ll have to provide proof of her income, resources and expenses, he said.

If she’s in dire straits and can’t afford to pay any of the money back — in other words, if she can’t meet her “ordinary and necessary living expenses” — she should submit an SSA-632, “Request for Waiver of Overpayment Recovery” form, Meyer said.

Q&A: Spousal benefits

Dear Liz: My wife and I have been married for 18 months. I am 67, she is 66. She is not eligible to receive Social Security due to her work history. Is she eligible to receive spousal benefits now, even though I plan to wait until age 70 to receive mine?

Answer:
Your wife can’t start spousal benefits until you begin receiving your own benefit. In the past, someone in your position could file a Social Security application and then immediately suspend it. That triggered the spousal benefit while allowing the primary earner’s benefit to continue growing. Congress changed those rules in 2015, however.

Q&A: Figuring taxes on Social Security

Dear Liz: How will our Social Security payments be affected by any passive income such as from rental properties? We have two properties, which add $3,000 monthly to our current income. I plan on retiring at 72, which is six years away. My husband may retire earlier due to health problems. We will have savings as well as my 401(k) when I retire. Although my retirement income “pencils out,” I don’t know exactly what to expect from Social Security. How should I calculate my net income in retirement?

Answer: You could pay income taxes on up to 85% of your Social Security benefits if you have other taxable income. Examples of taxable income include wages, interest, dividends, capital gains, rent, royalties, annuities, pension payments and distributions from retirement accounts other than Roths.

To determine how much of your benefit is taxable, you would first calculate your “combined income,” which consists of your adjusted gross income plus any nontaxable interest you receive plus half of your Social Security benefits. If you file a joint return, you typically would have to pay income tax on up to half of your benefits if your combined income fell between $32,000 and $44,000. If your combined income was more than $44,000, up to 85% of your benefits would be taxable.

Q&A: Guard your Social Security number

Dear Liz: You recently stated Social Security numbers were never intended to be used as a universal identifier. I’ve found that every place asking for my number has other means of identification and will ask for my mother’s maiden name or my place of birth when I tell them I don’t use my Social Security number for identification purposes. This also works for financial institutions that have a legitimate claim for having it.

Answer: To clarify, you probably had to disclose your Social Security number when you applied for accounts at your financial institutions. You also typically need to disclose it when you apply for credit, employment or government benefits.

But you don’t necessarily have to cough it up on demand to verify your identity or to do business with the many, many other companies and organizations that ask you for it without good reason to do so.

Q&A: Government pensions and Social Security

Dear Liz: Both of my parents have been retired for over 25 years. My father collects Social Security but my mother didn’t have enough quarters to collect. Both have Postal Service retirements. Can my mother file and get half of my father’s amount? Can they get back payments for 25 years?

Answer: The answer to both questions is “probably not.”

Your parents’ situation is complicated by the fact that the federal government changed its pension system for civilian employment in the 1980s. Prior to 1984, civilian employment was covered by the Civil Service Retirement System and workers did not pay into Social Security. Starting in January 1984, new hires were covered by the Federal Employee Retirement System and were required to pay into Social Security. Current hires had the option, but not the requirement, to join FERS, says William Meyer, founder of Social Security Solutions, a claiming strategy site.

Normally when someone receives a pension from a job that didn’t pay into Social Security, the government pension offset would reduce or eliminate any Social Security spousal benefit they might otherwise receive. However, there is an exception: The offset doesn’t apply to government workers who pay Social Security taxes for the last 60 months of employment. This exception applies to employees paying into FERS, Meyer says.

If your mother paid into FERS during the last 60 months of her employment at the Postal Service, she would be eligible for a spousal benefit on your father’s record, Meyer says. If your mother didn’t pay into FERS those last 60 months, the government pension offset would apply and would reduce or eliminate any spousal benefit.

That option should have been explored when your parents applied for their Postal Service retirement benefits, Meyer says. Social Security also would have looked into it as part of your father’s application process. If she’s not receiving a Social Security spousal benefit, she probably didn’t switch to FERS and did not pay into Social Security during the last 60 months of her employment at the Postal Service, Meyer says.

Q&A: How Social Security child benefits work

Dear Liz: I am drawing Social Security and my daughter just turned 18. Will she lose her Social Security and can I claim my wife in her place?

Answer:
Child benefits, which is what your daughter receives, are designed to help the dependent minor children of Social Security recipients who are retired, disabled or deceased.

If your daughter is still a full-time high school student, then her child benefit can continue until she graduates or turns 19, whichever comes first. Otherwise the benefit typically ends at 18. (A child 18 and over with a disability can continue to get child benefits, as long as the disability started before age 22.)

Child benefits are only for the unmarried children of Social Security recipients, so obviously your wife doesn’t qualify. She may be eligible for her own Social Security benefit if she’s at least 62, or a spousal benefit based on your work record if that’s larger than her own benefit. AARP has a free Social Security claiming calculator that could help her sort through her options.

Q&A: Social Security is insurance

Dear Liz: My wife died in March 2020. I receive nothing from her Social Security (other than $255) and will receive only a portion of mine due to the windfall elimination provision. Is there anything I can do since I am receiving none of what she paid into Social Security and only a fraction of mine?

Answer:
In a word, no. If you’re receiving a pension from a job that didn’t pay into Social Security, the government pension offset reduces any Social Security survivor or spousal benefit by two-thirds of the amount of your pension. If two-thirds of the amount of your pension is greater than your survivor benefit, you don’t get a survivor benefit.

Is that an outrage? Perhaps, if you think that Social Security should act like a retirement account. In reality, it’s insurance. (The formal name for Social Security is Old Age, Survivors and Disability Insurance.)

With a retirement account, what you take out usually bears some relationship to what you put in. With insurance, that’s not necessarily the case. You may take out more than you put in, less or nothing at all.

Many people pay Social Security taxes for decades but ultimately get more from a spousal or survivor benefit than from their own work record. Then there are those, like you, who have their retirement benefit reduced, or a survivor benefit eliminated, because they have a generous pension from a government job that didn’t pay into the Social Security system. In these cases, it can feel like the Social Security taxes paid — the “premiums,” if you will — have been wasted even if financially you’ve come out ahead.

Q&A: Social Security and government pensions

Dear Liz: You recently mentioned the windfall elimination provision that affects pensions from jobs that don’t pay into Social Security. I’m wondering what those jobs are. Are they just part of the gig economy, or is there some other category of jobs that don’t pay into Social Security?

Answer:
Gig economy jobs are supposed to pay into Social Security, just like the vast majority of other occupations. People with gig jobs are often considered to be self-employed, so instead of paying just 6.2% of their gross wages into Social Security like most workers, they also pay the employer’s 6.2%, for a total of 12.4% of their earnings.

Some state and local governments have their own pension systems that don’t require workers to pay into Social Security. People who get pensions from those systems and who also qualify for Social Security benefits from other jobs can be affected by the windfall elimination provision, which can reduce their Social Security benefit. They also can be affected by the government pension offset, which can reduce or even eliminate spousal and survivor benefits from Social Security. Here’s an example:

Dear Liz: I am 59, retired, and receive a pension of approximately $150,000 a year. My husband receives a small pension, about $1,000 a month, and Social Security disability due to a diagnosis of Stage 4 lung cancer. I am the sole financial support of my 88-year-old destitute mother, who requires care that costs approximately $5,000 a month. I retired earlier than anticipated to care for my ailing mother and husband.

Although I worked many years where I paid into Social Security, I knew I would receive only about half of my Social Security check due to the windfall elimination provision that affects pensions received from jobs that didn’t pay into Social Security. What I didn’t know is that when my husband passes, I will receive no survivor benefits from his 41-plus years of paying into the system.

Our entire retirement planning was based on his Social Security combined with my pension. He’s just a few months from passing, and I will not be receiving anything, which will immediately put me in an untenable financial position. How is it that after 30 years of marriage I will receive nothing because I have a pension? This just doesn’t seem right. Do I have any options?

Answer: Your situation shows why it’s so important to get sound advice about Social Security before retiring because many people don’t understand the basics of how benefits work.

Even if you didn’t have a pension, for example, your income would have dropped at your husband’s death. When one spouse dies, one of the couple’s two Social Security benefits goes away and the survivor gets the larger of the two checks the couple received.

Your pension is much, much larger than the maximum you could have received from Social Security in any case. If you can’t get by without your husband’s benefit, consider ways to reduce your expenses. Because your mother is destitute, she may be eligible for Medicaid, the government healthcare program for the poor. Unlike Medicare, Medicaid pays the costs of nursing home and other custodial care expenses. Contact your state Medicaid office for details.

Q&A: When pension trumps Social Security

Dear Liz: I am in my third marriage. My first two marriages each lasted 10 years. My spouses worked in jobs requiring them to pay into Social Security. I am currently retired (since 1999) and worked for a city government my entire career. I currently receive a pension from the city. Am I entitled to receive anything from Social Security for the time I was married to my previous spouses? It seems only fair since I had to pay each of them spousal support.

Answer: That’s a novel argument! Alas, the Social Security system doesn’t care about the details of your divorce decrees.

You can call Social Security and ask if you’re eligible for a benefit, but don’t get your hopes up if your pension comes from a job that didn’t pay into Social Security. A provision known as the government pension offset probably would wipe out any divorced spousal or divorced survivor benefit you might receive.