Ask Liz Weston

Get smart with your money

Social Security

Q&A: His Social Security claiming decision could use a second opinion

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Dear Liz: I retired in 2013 at 55. I purchased an annuity, which will pay $1,000 a month for life for me and my wife as well. That starts in February 2020. My retirement fund, meanwhile, was rolled into an IRA and I’m withdrawing about 10% of that annually. The balance is about $650,000.

My advisor wants me to start my Social Security at age 62. I would receive $1,800 a month and could reduce my withdrawal rate to 4%. I’ve also been told, however, that it would be better to wait until my full retirement age (66 and 6 months) or 70, when my benefit maxes out. At full retirement age, my monthly benefit would be about $2,500, and at 70, it would be $3,000.

I’m not sure what to do. My wife will be retiring next year and her monthly pension will be about $3,700. We still owe on our house and have other debt as well. What’s my best option?

Answer: There’s a lot of research showing that single people and “primary earners” — the higher wage earner in a married couple — are better off delaying the start of their Social Security benefits. (The article “Understanding Social Security Claiming Decisions Using Survey Evidence” in the November 2018 issue of the Journal of Financial Planning does a good job of summarizing the research.)

Longer life expectancies mean most people will live beyond the “break even” point at which the larger benefit more than makes up for the checks they pass up in the early years. These larger checks are a kind of longevity insurance, as well. The longer you live, the more likely you will have spent your other resources and wind up depending on your Social Security income to live.

Having the primary earner delay is especially important for married couples because at the first death the number of checks the household receives will drop from two to one. Because the survivor receives the larger of the two checks, it’s usually wise to make that check as large as possible.

The benefits of delay are so substantial — one study shows that the sustainable standard of living is 30% higher for people who start at 66 rather than 62 — that advisors often recommend tapping other resources, including retirement funds, if it enables people to put off starting their checks.

Your situation may be a bit different, though because you mention that your wife has a pension. If the pension is from a job that did not pay into Social Security, it would affect her ability to receive survivor’s benefits from the Social Security system. Something known as the government pension offset would reduce her survivor check by two-thirds of the amount of her pension, which could eliminate her survivor benefit entirely. If that’s the case, it wouldn’t be as crucial for you to delay.

Given how much is at stake, though, you might want to get a second opinion from another advisor who can review the specifics of your situation.

Q&A: Social Security’s widespread benefits

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Dear Liz: I encourage you to educate your readers about the real intention of Social Security, as well as the real problem facing it. Social Security was designed as a safety net to keep the elderly, disabled and orphaned from abject poverty. It was not intended to provide decades of benefits to individuals who are not at risk of living in poverty. It does no good to further the inaccurate notion that everyone is entitled to “their share” from a social safety net meant for the poor.

Answer: You’ve misunderstood Social Security’s structure and its history.

Social Security was deliberately created as a social insurance program, not as welfare assistance. Workers fund the system themselves through payroll taxes. They have to pay into the system a certain number of years to qualify for benefits. In return, they receive inflation-adjusted income that they can’t outlive and that isn’t vulnerable to market downturns.

Social Security benefits are progressive, which means they’re designed to replace more income for a lower-paid worker than a higher-paid one. But people who pay more into the system get larger benefits than those who pay less, and benefits are not means-tested.

Programs for the poor tend to be easy targets for politicians, but Social Security’s universal nature contributes to its widespread support. More than 1 out of every 6 U.S. residents, or about 62 million people, collected Social Security benefits in June 2018.

Q&A: Get help claiming Social Security

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Dear Liz: I read your column about the disabled woman who was asking about survivor benefits. I am 60 and my husband died when he was 65, but he was not receiving Social Security. We both paid into Social Security for our entire working careers and maxed out every year. I have been told that I can receive his benefits when I am 65. I wonder why I cannot collect his benefits now.

Answer: You can, but you may not want to if you’re still working and earning the kind of six-figure income needed to “max out” your Social Security taxes.

People who start Social Security benefits early are subject to an earnings test that withholds $1 in benefits for every $2 they earn above a certain amount, which in 2019 is $17,640. Social Security has a calculator to help you determine the effect on your benefit at https://www.ssa.gov/oact/cola/RTeffect.html. Your survivor’s benefit also will be reduced if you start it before your own full retirement age, which in your case is either 66 years and 8 months (if you were born in 1958) or 66 years and 10 months (if you were born in 1959).

Once you’ve reached full retirement age, however, the earnings test goes away, as does the reduction for starting benefits early. At that point, you could apply for full survivor benefits and leave your own retirement benefit alone to grow 8% each year until it maxes out at age 70. You can continue to work and receive benefits without facing any reductions.

Social Security can be astoundingly complex, and claiming decisions can be affected by a number of factors. AARP has a free Social Security claiming calculator, but it can’t deal with some situations such as survivor’s benefits, child benefits (for retirement-age people who have minor children) or the offsets associated with pensions that don’t pay into Social Security. For those, you would need to pay about $40 to use a more sophisticated calculator such as the one at MaximizeMySocialSecurity.com, or to consult a fee-only financial planner with experience in this area.

Q&A: Separated spouse is entitled to survivor benefits

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Dear Liz: I am a 57-year-old disabled woman whose only income is $500 a month in Supplemental Security Income. I was legally separated from my husband when he died at age 59. Can I collect Social Security from his account?

Answer: Most likely, yes.

To generate a survivor’s benefit, your husband would have had to pay into the Social Security system for a certain number of years. Younger people need to have worked fewer years than older ones to provide benefits for survivors, but no one needs to have paid in for more than 10 years.

Because your husband died before reaching retirement age, your survivor benefit would be based on what his retirement check would have been at his full retirement age (which would be 67, if he was born in 1960).

You could get 100% of that benefit if you wait until your own full retirement age to collect. Reduced benefits are typically available when a widow or widower turns 60. Survivors who are disabled can start benefits as early as age 50, if the disability started before the death or within seven years.

If your marriage had ended in divorce, you could still have qualified for survivor’s benefits as long as the marriage lasted at least 10 years. (If a marriage lasted that long and the ex is still alive, a divorced spouse can qualify for spousal benefits, which are up to half the ex’s benefit.)

With survivor benefits, you have the option of switching to your own retirement benefit later, if it’s larger, or of switching from your own benefit to a survivor’s benefit, should that be the better deal.

Q&A: Timing spousal benefits

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Dear Liz: My wife, who is 59, lost her job and has been unable to find a new one. Can she file for Social Security spousal benefits at 62? I plan to continue working.

Answer: For her to receive spousal benefits, you need to be receiving your own benefits. If you’re not yet 62, the youngest age at which you can claim retirement benefits, then her only option would be to file for her own benefit.

That may be the right course in any case. If you’re the bigger earner, it often makes sense for you to put off filing as long as possible to maximize not just your own check but the survivor’s benefit that one of you will have to live on once the other dies.

You can start your research into the best claiming strategy by using free calculators, such as AARP’s Social Security calculator or Open Social Security. If your situation is at all complicated — you have a minor child or a pension from a job that didn’t pay into Social Security — then consider paying about $40 to use a more sophisticated calculator, such as Maximize My Social Security, or consulting with a fee-only financial planner.

Q&A: Delaying Social Security

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Dear Liz: In a recent column you mentioned Social Security’s delayed retirement credit, writing that someone’s benefit could grow 32% by delaying benefits for four years between ages 66 and 70. Four years’ worth of accrued 8% increases in Social Security result in a cumulative increase of 36%, not 32%. I would think any financial planner would understand compound growth.

Answer: Social Security’s delayed retirement credits don’t compound.

Now, you may feel a little silly for pointing out an error that wasn’t actually an error, especially because you could have found the correct answer through a quick internet search (“Is Social Security’s delayed retirement credit compounded?”). But who hasn’t made a similar mistake? Sometimes what we don’t know about money isn’t the problem — it’s what we do know for sure that just isn’t true. (A similar quote is often attributed to Mark Twain, although there seems to be no evidence he ever said or wrote it.)

When I’ve made errors in this column, it’s often because I thought I understood something I didn’t or that my knowledge was up to date when it wasn’t. That’s why it’s so important to double-check our information with authoritative sources.