December 6, 2022 By

Q&A: Claiming divorced spousal benefits

Dear Liz: My son is 59, and his ex-wife died approximately 12 years ago. She was a nurse and paid more into Social Security than he has. Is he entitled to her Social Security benefits as indicated in your article? How does he file and get more information? Must he wait until he is 62?

Answer: If their marriage lasted at least 10 years, he could begin divorced survivor benefits as early as age 60, or age 50 if he is disabled. (He can remarry at age 60 or later and still receive survivor benefits.)

Benefits are reduced if he applies before his full retirement age, which will be 67. Also, starting before full retirement age means the benefits are subject to the earnings test that withholds $1 in benefits for every $2 earned over a certain amount, which in 2023 will be $21,240.

If he earns too much to make starting early worthwhile, he could apply for divorced survivor benefits at age 67, when the earnings test goes away. His own retirement benefit could continue to grow until age 70, and he could switch at that point if his own benefit is larger.

But he’d be smart to consult a financial planner or use a Social Security strategy site, such as Maximize My Social Security or Social Security Solutions, to craft the best approach.

He can call Social Security’s toll free number at (800) 772-1213 for more information.

Filed Under: Divorce & Money, Q&A, Social Security
November 28, 2022 By

Q&A: Divorce complicates retirement benefits

Dear Liz: I was told by Social Security that because I remarried at 60, I could still collect half of my ex’s benefits once he died. He has just died, and half of his benefit is greater than my own retirement benefit. My current husband has not started benefits. If I collect half of my ex’s benefit but want to later switch to collecting benefits on my current husband’s record (once he starts to collect) or to survivor benefits should he die before I do, can I do that?

Answer: The short answer is yes, although you’ve confused divorced spousal benefits with divorced survivor benefits.

While your ex was alive, you might have been eligible for a divorced spousal benefit if you had remained unmarried. That benefit would have been up to 50% of your ex’s primary insurance amount (the amount he would receive at his full retirement age).

The rules changed once your ex died. As a divorced survivor who remarried after age 60, you are entitled to up to 100% of what your ex was receiving. The survivor benefit will be reduced if you haven’t yet reached your full retirement age (which is currently between age 66 and 67).

Survivor benefits also offer more flexibility to switch later than other types of benefits. If you choose to begin receiving a surviving divorced spouse’s benefit now, you can switch to your own benefit at any point through age 70, if your benefit is higher, says William Meyer, founder of the Social Security Solutions claiming strategies site. You also can switch to receiving spousal benefits from your current spouse’s record once he starts collecting, if that benefit is greater than what you’re receiving from your former spouse’s record.

Figuring out the right way to claim can be tricky, so consider consulting an advisor or using claiming strategy software to determine what’s best in your situation.

Filed Under: Divorce & Money, Q&A, Social Security
October 31, 2022 By

Q&A: Filling a survivor benefit gap

Dear Liz: I am a 57-year-old widow. My children are 23, 22, 20 and 17. When my youngest graduates next June, I will lose the last of our Social Security survivor benefits. Our benefits used to be over $5,000 per month but her check is currently $2,084 per month. I am barely making it monthly now with my mortgage and other bills but will definitely not be able to afford to stay in my home once that benefit ends. I don’t know if I would be better off to rent out my home or sell it and buy a condo so my kids have a place to land. I am engaged and plan to live with my fiancé (knowing we can’t get married until I’m 60!). What are some things to consider in making this decision?

Answer: For those who aren’t aware, millions of children receive Social Security benefits because their parents are retired, disabled or deceased. The benefits typically continue until the child turns 18, or 19 if the child is still in high school. People caring for the offspring of a deceased worker also can receive benefits, but those typically end when the child turns 16.

Otherwise, survivor benefits generally are available to qualifying widows and widowers starting at age 60. Remarrying before age 60 can disqualify the survivor from benefits.

You obviously need a plan to bridge that two- or three-year gap before your widow’s benefits begin. But the best approach depends on the details of your situation.

You don’t mention how many of your children are now living at home, although it’s not unreasonable to consider how to house one or more of them in the next few years. Your youngest may want to live at home while going to college, or need a room to come back to in the summers if she goes away to school.

The others may well boomerang home even if they’re currently on their own. Kids can take longer to launch these days, especially in high-cost areas where affording even a modest apartment can be difficult.

That doesn’t mean you have to buy them their own place, of course. What you’re able to offer will depend on your resources and circumstances. You may need the money from the sale or rental of your home to bolster your retirement funds, for example, or to help pay college tuition.

Whether renting or selling is the best move also depends on your circumstances. Selling may be the better option if you can’t rent the home for more than its carrying costs. Even if you could make a profit each month, you may not want the hassles of being a landlord. A bad tenant or an unexpected vacancy could upend your finances, particularly if you don’t have considerable savings.

Also, if you rent out the home for more than a few years, you would lose the ability to exempt up to $250,000 in home sale profits when you did finally sell it. To take advantage of the exemption, you must have owned and lived in the home for at least two of the previous five years.

Consider scheduling a session with an accredited financial counselor. These advisors are fiduciaries, which means they’re required to put your best interests first, and they often work on a sliding scale. You can get referrals from the Assn. for Financial Counseling & Planning Education.

Filed Under: Q&A, Social Security
October 10, 2022 By

Q&A: Social Security and inflation

Dear Liz: If I wait until I am 70 to claim Social Security, my benefit will increase 8% a year. With inflation above 8%, should I take Social Security early? I am almost 68.

Answer: This question was answered in a previous column but needs to be addressed again because so many people misunderstand how Social Security cost-of-living increases work.

Social Security applies cost-of-living adjustments to your benefits whether you’re currently receiving them or not. In other words, your benefit has been receiving inflation adjustments since you turned 62, when you were first eligible.

Applying now doesn’t get you anything extra and, in fact, costs you because you’re giving up the 8% annual delayed retirement benefits you would otherwise receive.

Filed Under: Q&A, Social Security
September 26, 2022 By

Q&A: Can someone who has remarried claim survivor benefits from a deceased former husband?

Dear Liz: Can someone who has remarried claim survivor benefits from a deceased former husband?

Answer: Possibly, if the marriage lasted at least 10 years, the divorce occurred at least two years ago and she remarried at age 60 or later.

Divorced survivor benefits can be up to 100% of the former husband’s benefit. The amount would be reduced if the ex-wife applies before her own full retirement age, which is currently between 66 and 67. (Survivor benefits could be further reduced or even eliminated if the ex-wife receives a pension from a job that didn’t pay into Social Security, under the “government pension offset” rules.) If the ex-wife has earned a Social Security benefit of her own, she would get the larger of the two checks rather than both amounts.

The rules for divorced survivor benefits are different from those for divorced spousal benefits. Divorced spousal benefits may be available while the ex-husband is still alive, but only if the ex-wife hasn’t remarried. Also, divorced spousal benefits max out at 50% of the ex-husband’s benefit.

Filed Under: Q&A, Social Security Tagged With:
September 19, 2022 By

Q&A: Social Security’s complex rules

Dear Liz: You recently mentioned that people can’t always trust the information they get from Social Security representatives. I worked for Social Security for 25 years. When I was ready to file for spousal benefits a few years later in another town, the rep I got immediately told me I wasn’t eligible and was not even going to fill out an application. I knew he was wrong but he was adamant. Always, always tell your readers to insist on filing an application no matter what, as that protects their appeal rights. The applicant might be wrong but will receive a formal determination telling them why. I spent 20 minutes educating that rep on what he should have already known. They don’t train them like they used to.

Answer: Social Security rules can be immensely complicated and, as you note, not every Social Security representative understands those rules as well as they should.

Anyone who’s thinking of applying should first educate themselves as much as possible (the latest edition of “Social Security for Dummies” by Jonathan Peterson is an excellent place to start). Consider using Social Security claiming software or getting personalized advice from a fee-only financial planner. Once you’re well informed, you’ll be better able to recognize and avoid bad advice.

Filed Under: Q&A, Social Security
September 12, 2022 By

Q&A: When to start Social Security

Dear Liz: I’m confused by your answer to the question about starting Social Security too early. You wrote that someone who decides they made a mistake can suspend the benefit once they reach full retirement age. From the description, it sounds like there is no penalty for this option, so everyone should do it! This sounds too good to be true, so I (and maybe others) might be misinterpreting this. It sounds like you get early benefits from 62 to full retirement age, then the full delayed benefit at 70.

Answer: Keep in mind that your Social Security benefit is permanently reduced when you start it early. The earlier you start, the bigger the reduction.

Social Security allows you to suspend your benefit once you’ve reached full retirement age (currently between age 66 to 67). While it’s suspended, your benefit will receive delayed retirement credits that will increase your checks by 8% each year until age 70. Your benefit also continues to receive cost of living adjustments, whether you’re currently receiving it or not.

A suspension can help you offset some of the reduction you incurred by starting early, but you’ll never get as much as if you’d waited until age 70 to apply.

Filed Under: Q&A, Social Security Tagged With:
September 5, 2022 By

Q&A: Social Security divorced spouse benefits

Dear Liz: You recently answered a woman about collecting on her ex-husband’s Social Security record. You said she was eligible for a spousal benefit if they were married at least 10 years, which they were. I think you should have added that the spouse needs to be collecting their own Social Security when you apply. A Social Security rep told me I had to wait till my ex retired and then I’d automatically get the larger benefit. I waited. Eventually I asked my ex and he said he had started collecting Social Security some months previously. I applied and did get a retroactive payment.

Answer: Unfortunately, people don’t always get correct information from Social Security representatives.

You did not have to wait for your ex to begin receiving Social Security to apply for a divorced spousal benefit. While that’s a requirement for still-married couples — the primary worker must apply for their own benefit to trigger a spousal benefit — a divorced spouse has only to wait until their ex turns 62 and is eligible to receive Social Security retirement checks.

The representative you talked to may not have understood that you were talking about an ex rather than a current husband, or the rep may have been confused about the rules.

Because Social Security can be so complicated, it makes sense to educate yourself as much as possible about the rules. Books like Jonathan Peterson’s “Social Security for Dummies” can be helpful; just make sure to get the latest edition, since the rules for spousal benefits changed substantially in 2015.

Filed Under: Q&A, Social Security Tagged With: ,
August 29, 2022 By

Q&A: Delaying Social Security benefits

Dear Liz: I reached my full Social Security age (66) in December 2020. I’ve been waiting until age 70 to start benefits so I can get the 8% annual delayed retirement credits and maximize my benefit. However, if the 2023 cost of living increase will be 10.5%, should I go ahead and start benefits this year, at age 68? Does someone need to be on Social Security for a full year before being eligible for the COLA, or would one month be enough?

Answer: Your benefit will get the cost of living increase whether you’ve started receiving checks or not. In fact, it’s been getting those increases since you turned 62 and became eligible. So applying now just means giving up two years’ worth of delayed retirement credits.

Filed Under: Q&A, Social Security Tagged With: ,
August 22, 2022 By

Q&A: Is the ‘tax torpedo’ coming for you? Here’s what you need to know

Dear Liz: I am pondering the best time to begin drawing Social Security. I have no debt, am 61, retired and fortunate enough to have retirement funds that are projected to last until I’m 95 without Social Security. That said, when I begin drawing Social Security, I understand I am likely to get taxed at the full 85% rate based upon the monthly income I receive. Does it make sense to hold off on applying until 67 or later knowing that I’ll be taxed more on the higher income, or should I draw sooner, understanding the tax liability would be less? Or, when I begin receiving Social Security, would I cut back on the amount of retirement funds I receive monthly?

Answer: The way Social Security benefits are taxed is somewhat convoluted and easy to misunderstand. Just to be clear: You would never lose 85% of your Social Security benefit to taxes. But if you have income outside of Social Security, up to 85% of your benefit can be taxable at your regular income tax rates.

The taxes are based on what’s known as your “combined income,” which is your adjusted gross income plus any nontaxable interest plus half of your Social Security benefits. If you’re single and your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxable. If your combined income exceeds $34,000, you may owe tax on up to 85% of your benefits.

If you’re married filing jointly, combined income between $32,000 and $44,000 could trigger taxes on up to 50% of your benefit. If your combined income is more than $44,000, up to 85% of your benefit may be taxable.

Because of this unusual structure, people can face what’s known as a tax torpedo, which is a sharp rise and then fall in their marginal tax rates. If your income is high enough, you won’t be able to avoid the tax torpedo.

However, many middle-income people can mitigate its effects by delaying Social Security and drawing down their retirement funds instead. You can get some understanding of how this works by searching on the phrase “tax torpedo.”

For a more in-depth analysis, search for the research paper by William Reichenstein and William Meyer titled “Understanding the Tax Torpedo and Its Implications for Various Retirees.”

Consider discussing your situation with a fee-only financial planner who can model different scenarios and give you personalized advice.

Filed Under: Q&A, Social Security, Taxes Tagged With: , , ,