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.

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.

Q&A: Wait to draw Social Security

Dear Liz: I’m about to turn 75. My wife is 67. I started collecting Social Security at age 70. My benefit is on the low side but I also get a union monthly pension. My wife is still working and planning to file for her Social Security benefit at 70, and she may get three times my amount. Is there a provision where I could be collecting a higher amount now based on her earnings?

Answer: Your wife would have to apply for her benefit before you would be eligible for a spousal benefit based on her work record. Once she applies, your spousal benefit would be 50% of her “primary insurance amount” — which is the benefit she would get at her full retirement age. For someone born in 1955, the full retirement age is 66 years and 2 months.

If she did apply now, your benefit might increase but she would miss out on the delayed retirement credits that would increase her checks by 8% for each year she puts off applying until age 70.

Generally, it’s a good idea for the person with the larger benefit to delay applying as long as possible, since it’s their check that determines what the survivor gets. But there are always exceptions, so you’d be smart to research your options. Social Security Solutions and Maximize My Social Security can help you model different claiming strategies, or you could discuss your situation with a financial planner.

Q&A: Social Security and divorce

Dear Liz: I was married for 25 years. Most of the time, I was a full-time housewife and worked part time here and there. Social Security keeps telling me that I can’t collect on my ex’s Social Security until he dies. He is 74 and I am 72. I started collecting at 62 and don’t get that much in Social Security. Is it true that I have to wait until he dies to get more?

Answer: Technically, you’re eligible for a divorced spousal benefit that’s up to 50% of your ex’s benefit if your marriage lasted at least 10 years and you haven’t remarried. If that amount is less than your own benefit, though, you wouldn’t get anything extra.

The math changes if your ex should die. Then you would be eligible for a survivor’s benefit that is equal to what he was receiving. If that amount is larger than your own benefit, you would get the larger amount.

Q&A: Deciding on when to take Social Security

Dear Liz: My ex-husband is 13 years younger than I. We were married for 10 years and he earns more than I do. If I start drawing my own Social Security benefit at age 70, can I switch to his benefit when I’m 75 and he is 62?

Answer: Normally when someone applies for Social Security, they’re “deemed” or assumed to be applying for all the benefits for which they’re eligible. If you’re eligible for your own retirement benefit as well as a divorced spousal benefit, for example, you would get the larger of the two amounts. You wouldn’t be able to switch from one to the other later.

There are a few exceptions to this rule, however, and your situation is one of them. You won’t be eligible for a divorced spousal benefit until your ex-husband reaches minimum retirement age (62). At that point, you would be eligible for 50% of his primary insurance amount, or the check he would get at his full retirement age, which is currently between 66 and 67. If that amount is larger than what you’re receiving, you could switch.

If you’re going to switch, though, you may not want to wait until 70 to apply for your own benefit. Delaying makes sense for most people, because they’ll live past the break-even age in their late 70s when the larger value of the delayed benefit more than makes up for the smaller checks they pass up in the meantime. If you switch at 75, though, you won’t have received your own benefits for long enough to make up for bypassing the smaller checks, says Dr. William Reichenstein, head of research at Social Security Solutions.

Deciding when to start Social Security can be tricky even in simpler situations than yours, so consider using a site such as Social Security Solutions or Maximize My Social Security for advice on when to claim.

Q&A: Starting Social Security too early

Dear Liz: Does the Social Security Administration still allow a person to start taking Social Security benefits at age 62 and then later return the full amount received and begin taking the higher delayed benefits? For people who don’t need the income, this seems like a smart strategy as they could obtain the investment income on the benefits received from age 62 to 70 as well as the higher benefits amount starting at age 70.

Answer: Social Security closed that particular loophole in 2010.

As you know, Social Security retirement benefits increase each year you put off applying between age 62 and age 70, when benefits max out. An early start typically means a permanently reduced benefit.

Before 2010, people who started early, but who were able to repay all the money they received, were allowed to restart benefits at an older age and claim the larger checks as if they’d never applied before. This do-over prompted some recipients to apply early, invest the money and enjoy a kind of interest-free loan from the government.

People who make the mistake of starting Social Security too early still have a couple of options. They can withdraw their application for benefits within 12 months, but they are required to repay any benefits received, including benefits received by family members such as spousal or child benefits.

Another option is to wait until their full retirement age, which is currently between 66 and 67, and simply suspend their benefit.

No money has to be paid back and the recipient receives the delayed retirement credits that increase their benefits by 8% for each year they delay. Benefits will be automatically restarted at age 70, although the recipient can start them earlier, if desired.

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: 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: 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.