Social Security

Q&A: Social Security spousal benefits

September 23, 2019 By Liz Weston

Dear Liz: My wife plans to file for her Social Security benefit when she turns 66 in April 2020. I plan to file for my benefit at age 70 in July 2022. Can I file for a spousal benefit when my wife files in 2020? Can my wife claim a spousal benefit in 2022 when I file for my own benefit, assuming it is more than her own benefit? Will my wife’s spousal benefit increase like my benefit does between my ages of 66 to 70, or does it max out at my age 66?

Answer: Because you’ve reached your full retirement age of 66 and you were born before Jan. 2, 1954, you are still allowed to file a restricted application for spousal benefits once your wife applies for her own benefit. When your benefit maxes out at age 70, you would switch to your own because there’s no incentive to further delay.

Restricted applications are no longer available to people born later. Instead, when they apply for benefits they are deemed to be applying for both their own and any spousal benefit to which they might be entitled. They’re given the larger amount and typically can’t switch later.

One of the exceptions could apply in your case, however. Your wife won’t be able to take a spousal benefit when she applies because you won’t have started your benefit. Once you start, if her spousal benefit based on your work record is larger than what she’s receiving based on hers, she could switch.

Because only one spousal benefit is allowed per couple, you’ll want to investigate which could result in more money before you apply.

As for your last question: Spousal benefits don’t earn the delayed retirement credits that can increase a worker’s retirement benefits by 8% annually between full retirement age and 70. If your wife had started spousal benefits before her own full retirement age of 66, the amount would have been permanently reduced — she would receive less than 50% of the benefit you’d earned at your full retirement age. But she won’t get more than 50% if she starts them after her full retirement age.

Q&A: Avoid this hidden risk to your retirement

September 16, 2019 By Liz Weston

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: Avoiding Medicare sign-up penalties

September 16, 2019 By Liz Weston

Dear Liz: Someone recently asked you if signing up for Medicare is mandatory. Your answer implied no, one does not have to sign up at 65. However, it is my understanding that if a person does not enroll when first eligible, they will be hit with large penalties on their Medicare premiums if they sign up later. Am I missing something?

Answer: Not at all. That answer was too short and should have mentioned the potentially large, permanent penalties most people face if they fail to sign up for Medicare Part B and Part D on time.

To review: Medicare is the government-run healthcare system for people 65 and older. Part A, which covers hospital care, is free. Medicare Part B, which covers doctor’s visits, and Part D, which covers prescriptions, typically require people to pay premiums. Many people also buy Medigap policies to cover what Medicare doesn’t, or opt for Medicare Part C. Part C, also known as Medicare Advantage, is an all-in-one option that includes everything covered by Part A and Part B and may include other benefits.

There’s a seven-month initial enrollment period that includes the month you turn 65 as well as the three months before and three months after.

People who don’t sign up when they’re first eligible for Part B usually face a penalty that increases their monthly cost by 10% of the standard premium for each full 12-month period they delay. For Part D, the penalty is 1% of the “national base beneficiary premium” ($33.19 in 2019) times the number of full months the person was uncovered.

People who fail to enroll on time also could be stuck without insurance for several months because they may have to wait until the general enrollment period (Jan. 1 to March 31) to enroll.

People typically can avoid these penalties if they have qualifying healthcare coverage through a union or an employer (their own or a spouse’s). When that coverage ends, though, they must sign up within eight months or face the penalties. Also, they might not avoid the penalties if their employer-provided coverage becomes secondary to Medicare at 65, which can happen if the company employs fewer than 20 workers. Anyone counting on union or employer coverage to avoid penalties should check with the company’s human resources department and with Medicare to make sure they’re covered.

The original letter writer had no income to pay Medicare premiums, so the answer also should have included the information that Medicaid — the government healthcare program for the poor — might help pay the premiums. People in this situation should contact the Medicaid office in their state. (Medicaid is known as Medi-Cal in California.)