Ask Liz Weston

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Social Security

Q&A: Balancing disability and survivor benefits

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Dear Liz: My 70-year-old husband is retiring at the end of the month. I’m 64 and collecting Social Security disability. If he should pass away before me, which is not likely considering my medical conditions, will I still get at least half of his Social Security income instead of my own, if it’s more than what I’m already collecting? I do understand that my disability benefit will stop at 65. I will then be collecting a regular Social Security benefit at my retirement age of 67. We are totally confused and trying to decide whether to forgo getting a retirement annuity benefit for me from his employer pension if he should pass before me.

Answer: Your disability benefit doesn’t stop at 65. It continues until you reach your full retirement age of 67, and then converts to a retirement benefit. The name for the benefit changes but the amount doesn’t.

If the amount you’re receiving is less than what your husband gets, and your husband dies first, you will get a survivor’s benefit equal to what he was getting. Survivors don’t get their own benefit plus their spouse’s; they just get the larger of the two benefits.

With pensions, it would be smart to get expert advice before you sign away your right to a survivor benefit. The default payout option for a married person is typically “joint and survivor,” which means the survivor would continue to receive the checks after the person dies. Opting for a “single life” payout instead increases the monthly check, but the money stops when he dies. While it may seem more likely you’ll die first, there are no guarantees and waiving your right to a survivor benefit could lead to a steep drop in your income.

The pension may offer different joint and survivor options, such as 100%, 75% and 50%. With the 100% option, the payments continue to be the same if he dies first. The 75% and 50% options reduce the payment after his death to 75% or 50% of the previous amount. Choosing 75% or 50% could be a decent compromise that allows you to get more money now but still get payments should he die first.

Q&A: Social Security spousal benefits count as yours

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Dear Liz: My husband is 69 and taking his Social Security benefit. I will be 62 in November and would like to ask if I can take half of his amount when I turn 62 and let mine grow until my full retirement age of 66 and 8 months? Or am I only able to collect mine at 62?

Answer: You can’t take a spousal benefit and let your own retirement benefit grow. When you apply for Social Security, you will be “deemed” to be applying for both benefits and you’ll get the larger of the two. You won’t be able to switch later. Applying at 62 means accepting a permanently reduced benefit. Some people don’t have much choice, but if you can continue working or tap other retirement funds, waiting is usually the better option.

Q&A: Spousal benefits go to spouse, not partner

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Dear Liz: I’ve been separated from my husband for 50 years but there’s been no legal divorce. If he dies, do I receive his Social Security benefit or does his common-law wife of 20 years?

Answer: You do.

Social Security recognizes common law marriage if a couple lives in a state that recognizes such unions, or lived in one when the marriage began. No state, however, recognizes common-law bigamy. As long as he’s still married to you, he can’t be legally married to someone else.

If the two of you divorced and he re-married, his spouse could qualify for benefits on his work record — but so could you. Since your marriage lasted more than 10 years, you could qualify for divorced spousal benefits (a percentage of his benefit while he was alive) as well as divorced survivor benefits (100% of his benefit when he dies). Your divorced spousal benefits would end if you remarry. If he dies and you get divorced survivor benefits, you would be able to keep those if you’re 60 or older when you remarry.

Q&A: The value of waiting

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Dear Liz: This is a follow-up question to one you recently answered about tapping 401(k)s in order to delay the start of Social Security. I am 63 and retired early with a good pension that fully covers my basic living expenses. Any additional money would only be “gravy” for vacations and travel. Would I be taxed the same if I start taking Social Security now vs. waiting? I could easily tap my 401(k) to put off applying for Social Security.

Answer: When it comes to Social Security, if you can wait, you probably should.

Many middle-income people who have retirement funds will pay higher taxes if they start their benefits early, according to researchers who studied the “tax torpedo,” which is a sharp increase and then decline in marginal tax rates caused by the way Social Security benefits are taxed. The researchers found that many could lessen its effects by delaying the start of Social Security and tapping retirement funds instead.

If you’re married and the primary earner, it’s especially important to delay as long as possible because your benefit determines the survivor benefit that one of you will receive after the other dies.

Q&A: Which to tap first: IRA or Social Security?

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Dear Liz: I retired in 2015 but have not started Social Security. My wife and I are living on a pension and savings. I read an article saying that taking early IRA withdrawals and holding off on Social Security can help minimize the so-called tax torpedo, which is a sharp rise and fall in marginal tax rates due to the way Social Security benefits are taxed.

I made a spreadsheet to compare the cumulative income we could expect by starting IRA withdrawals now and delaying Social Security until age 70, versus starting Social Security now and delaying the IRA withdrawals. The spreadsheets indicate that by taking early IRA distributions and delaying Social Security, we would get a significant increase in total cumulative income as the years go by.

We feel we need a professional to verify our results and perhaps advise us as to which might be our best route, as well as getting an assessment of our income tax implications for the next five years or so. My wife thinks we should ask a Certified Public Accountant and is concerned about the price of a fee-only advisor.

Answer: Your findings are similar to what researchers reported in the July 2018 issue of the Journal of Financial Planning. The tax torpedo increases marginal tax rates for many middle-income households. One solution is to delay Social Security until age 70 and tap IRAs instead. That maximizes the Social Security benefit while reducing future required minimum distributions.

It’s always a good idea to get an objective second opinion on retirement distributions, however. Mistakes can be costly and irreversible. A fee-only certified financial planner should have access to powerful software that can model various scenarios to help confirm your results and guide your next steps.

Q&A: Delaying Social Security benefits

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Dear Liz: My wife is a retired schoolteacher who has a pension. Because she is subject to the government pension offset, she will not be eligible for my Social Security benefit when I pass. My plan was to wait until 70 to file to maximize my benefit. This usually has the advantage of also increasing the survivor benefit that a spouse would receive.

Considering the government pension offset would eliminate any benefit to her, is waiting until 70 still the best strategy? Do I view it as longevity insurance with the understanding that I, or my wife, may never receive a nickel from Social Security if I die before claiming?

Answer: As you know, it’s usually advisable for the higher earner in a couple to delay starting Social Security as long as possible, because that increases the survivor benefit one spouse will get after the other dies.

Waiting until 70, when your benefit maxes out, can still make sense. Most people will live past the “break even” age when the larger checks more than offset the forgone benefits. The average life expectancy for a 65-year-old male is another 18 years. If you’re well educated, higher income or have longevity in your family, your life expectancy is probably even longer.

Delaying Social Security also can help minimize the “tax torpedo.” This is a surge in marginal tax rates that affects middle-income households caused by the unique way Social Security benefits are taxed. Drawing from retirement accounts first and then starting Social Security at 70 can result in considerable tax savings.

Also, in today’s low-rate environment, there’s no other investment that promises a guaranteed 8% annual return, which is what you get by delaying Social Security after your full retirement age.

To see which claiming strategy makes sense, consider using a Social Security claiming calculator that can include government pension offset situations such as Maximize My Social Security or Social Security Solutions.