Ask Liz Weston

Get smart with your money

Social Security

Q&A: Avoid this hidden risk to your retirement

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Dear Liz: I have very low net worth and just inherited $500,000 from a cousin’s annuity. My net worth includes a $400,000 house with a $290,000 mortgage at 3.75%, IRA accounts of $65,000 and savings of $90,000. I also have a pension from which I receive $50,000 annually and from which our health insurance is paid. My husband is 72 and receives $6,000 annually from Social Security. I will turn 70 in a few months and will begin taking Social Security and tapping my IRAs. I have very little debt. What is the safest thing to do with this inheritance?

Answer: That depends on how you define “safe.”

Investments that don’t put your principal at risk typically offer returns that don’t beat inflation over time. That means your buying power is eroded. At 70, you may not think you need to worry much about inflation. But your life expectancy as a woman in the U.S. is 16.57 more years. About one-third of women your age will make it to age 90.

That doesn’t mean you have to take investment risk with this money by buying stocks, which are the one asset class that consistently outpaces inflation. But you’d be smart to have a fee-only financial planner take a look at your situation to make sure you’re investing appropriately, based on your goals.

And it’s your goal for this money that will help determine how to invest it. If you want the money to be readily available and safe from investment risk, then you could put it in an FDIC-insured, high-yield savings account paying 2% or so. Just make sure you don’t exceed FDIC limits, which typically cap insurance coverage at $250,000 per depositor, per bank. (You can stretch that coverage if you put the money in different “ownership categories,” such as individual, joint, retirement and trust accounts.) If you don’t expect to need the money for many years, investing at least some of it in bonds or stocks may be appropriate.

Also, a small reality check: Your net worth before the inheritance was $265,000, based on the figures you provided. That’s more than most people in your age bracket. Households headed by people ages 65 to 74 had a median net worth of about $224,000 in 2016, according to the Federal Reserve’s latest Survey of Consumer Finances. That’s not to say you’re rich, but you do have more than most of your peers — especially now.

Q&A: Signing up for Medicare

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Dear Liz: Is it mandatory to sign up for Medicare at age 65, and how is it paid for? I’m 64, don’t have any assets and I’m not working (I’m living with a friend for free). I’d like to wait until 70 to collect Social Security. Is that possible? Someone just told me that I have to sign up for Medicare, and to pay for it, I have to sign up for Social Security. Is that true?

Answer: No.

You’re not required to get Medicare at 65. You should, however, at least sign up for Medicare Part A. Part A is the portion of Medicare that’s free and covers hospital visits. You sign up for Medicare through Social Security, either online or in a Social Security office, but you don’t have to start your Social Security benefit to do so.

The other parts of Medicare — Part B, which covers doctor’s visits, and Part D, which covers prescription drugs — require paying premiums, but you can pay those without signing up for Social Security. Some people are confused about this, because most people who get Medicare have those premiums deducted from their Social Security checks. But that’s not required.

Q&A: Social Security spousal benefits

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Dear Liz: I’m confused by Social Security benefits for divorced spouses, which you’ve written about recently. I was told that because I remarried (after age 60), I have to wait until my ex-husband died before receiving a part of his benefits. Is this still true for remarried ex-spouses? My ex does collect Social Security and I collect my small benefit (both of us started at full retirement age).

Answer: Yes. Divorced spousal benefits would be available only if you are currently unmarried. Survivor benefits, on the other hand, could still be available if you remarried at 60 or older.

Spousal and divorced spousal benefits can be up to 50% of the worker’s benefit, while survivor and divorced survivor benefits can be up to 100%.

Q&A: Confusion over spousal benefits

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Dear Liz: I am currently receiving a spousal benefit from Social Security that’s equal to 50% of my husband’s benefit. My husband and I applied when we were 66 years old in 2015. I do not think my own benefit will be higher than the spousal benefit I am currently receiving when I turn 70 later this year.

But I was told by an agent over the phone that I am still required to file for my own benefit at age 70, and she set me up with a phone appointment. Is this true?

If I do apply and my benefit comes out less than the spousal benefit I have been receiving, will that amount be adjusted so that I can still receive the full 50% of my husband’s benefit? Or will I end up with a smaller amount just for applying?

I can’t see why I should “rock the boat” if I might get benefits taken away. I was just curious when I called in to see if they could figure it over the phone for me to see if I would benefit from the change, but instead I had to set up the appointment.

Answer: You won’t end up with a smaller amount. You’ll either continue with your current benefit or get an increase.

If you didn’t file a restricted application four years ago, then you’re already receiving your own benefit, plus an additional amount so that your checks equal 50% of your husband’s. If that’s the case, there’s no reason to do anything further and your benefits will continue as they are now.

But the phone rep’s insistence that you needed the appointment could mean that you filed what’s known as a “restricted application for spousal benefits only.” That form allowed people born before Jan. 2, 1954, to receive only a spousal benefit while their own benefits continued to grow.

Retirement benefits can increase 8% each year they’re delayed after full retirement age (which for you was 66) and 70, when benefits max out. If your benefit has been growing and is now larger than your current benefit, you’ll get the increase, so it’s certainly worth checking.

Q&A: Resetting the Social Security clock

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Dear Liz: I read that you can pay Social Security back the payments you’ve received in order to “reset the clock” and get a larger benefit. Is that true or did I misunderstand the article? My husband started two years ago to claim Social Security benefits at age 67, but if he had waited until he was 70, of course the checks would have been higher for all future payments. Can he pay back to the Social Security administration the amounts already paid to him in order to now claim the higher rate as if he had delayed receiving monthly payments?

Answer: It’s not just his own checks that could have been higher. If he was the higher earner, then the survivor benefit that one of you will receive when the other dies would also have been higher.

Unfortunately, the “do over” option is now only available in the first twelve months after someone begins receiving benefits. People who change their minds during that period can withdraw their Social Security applications, pay back the money they received and then restart their benefits later, when the amounts they get would be larger.

For more information, check out Social Security’s page “If You Change Your Mind” (www.ssa.gov has all sorts of information). After the first year, people can’t withdraw their applications.

Your husband still has the option of suspending his benefit, however. He wouldn’t be able to completely reset the clock, but he also wouldn’t have to pay back all the benefits he received. Instead, every month he waited to restart his checks would increase his benefit by two-thirds of 1% each month (or a total of 8% a year) until he reached age 70, when the benefit would max out.

Social Security representatives have been known to falsely tell people that this option no longer exists, but it’s still available to anyone who has reached full retirement age, which is currently 66.

Q&A: Sorting out the ex’s benefits

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Dear Liz: I am 68 and plan to delay starting Social Security until I’m 70. I was married for 15 years prior to an amicable divorce 15 years ago. My ex just turned 60 and remains unmarried but may possibly marry at some future time. Does she qualify for survivor benefits? If so, what can I do to help ensure that she can efficiently apply for that benefit? We have already reviewed her option to assume my benefit upon my demise, but our benefits are virtually at identical levels and so that option does not seem applicable.

Answer: You seem to have confused divorced survivor benefits with divorced spousal benefits. She may well be eligible for both, but the only way you can help her get survivor benefits is to die. It’s great that you two are still friends, but that may be taking friendship a little too far.

Your ex is too young to claim a divorced spousal benefit, which isn’t available until she turns 62. She wouldn’t be able to get the full amount, which is 50% of your benefit at your full retirement age, until she reaches her own full retirement age. If she was born in 1959, then her full retirement age is 66 years and 10 months.

Furthermore, she would get a divorced spousal benefit only if that’s larger than her own benefit. If your benefits are “virtually identical,” that’s not likely to be the case.

If you should keel over tomorrow, though, she would be eligible to receive a divorced survivor benefit and put off receiving her own. Survivor benefits are available starting at age 60, or age 50 if the survivor is disabled, or at any age if the survivor cares for the dead person’s child who is under 16. Your ex also could marry at 60 or older without losing her survivor benefit. People who receive divorced spousal benefits, on the other hand, lose that benefit if they remarry.