Q&A: Delaying Social Security

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.

Q&A: The Social Security waiting game

Dear Liz: I am 66 and had always planned to delay starting Social Security until I was 70. I do not need the income at this point of my life. I am no longer working as my husband has health issues and I do not expect to have any earned income.

But the latest statement I received from Social Security told me that the projected higher amount I would receive at age 70 is based on taxable earnings similar to what I was making before I retired. Now I have concerns that my lack of income will lower the amount of my benefit. Is it best for me to just start Social Security now?

Answer: No. You won’t increase your benefit. In fact, you’d be giving up the guaranteed 8% annual boost you would otherwise get.

Knowing how Social Security calculates your benefit can help you understand why this is true. Social Security bases your check on your 35 highest earning years. If you worked this year, then your 2019 wages could conceivably become one of those highest earning years, displacing a year when you earned less. That typically results in a slight increase to your benefit.

If you don’t work, however — or do work and don’t earn more than you did in one of those 35 highest earning years — your benefit remains the same.

Social Security projections assume you work until you claim benefits, so its estimates may slightly overstate the check you’ll actually get. But you will still receive the delayed retirement credit that boosts your check by 8% for each year you delay starting Social Security after your full retirement age of 66. That’s a 32% increase if you wait until age 70, when your benefits max out, to start. And that is definitely worth waiting for.

Q&A: Social Security survivor benefits complications

Dear Liz: My husband started collecting Social Security benefits at age 62. I was still working at the time. When I reached my full retirement age of 66, I started collecting spousal benefits, or 50% of the benefit he received. After I reached age 70 and retired, I switched over to my own benefit as it was a larger amount.

If my husband should die first, can I switch back to a survivor benefit based on his earnings record or do I have to continue collecting my own? As I understand it, the survivor benefit would be 100% of his benefit, which is more than I currently receive.

Answer: When one of you dies, the survivor will get one check instead of two, and the amount will be the larger of the two benefits you’re receiving now. So if he dies first, you’ll essentially stop getting your check and start collecting a survivor’s benefit equal to his.

You were lucky that you were able to file what’s known as a “restricted application” to get spousal benefits first, so that your own benefit could continue to grow. That option is not available to people born on or after Jan. 2, 1954.

But it’s unfortunate that your husband started benefits early because that permanently reduces the amount the survivor will receive in the future. Typically it’s best for the higher earner in a couple to delay receiving Social Security benefits as long as possible to maximize what’s left for the survivor.

Q&A: Claiming Social Security can get complicated

Dear Liz: I am 63 years old, born in November 1955. My husband and I divorced five years ago after 37 years of marriage. I work full time and plan to continue until age 70 at least. Am I eligible for the option of applying for restricted benefits under my ex-husband’s Social Security when I turn 66 and then switching to my maximum benefit at age 70? He was always a much higher wage earner than I was, and I’m confused about whether I qualify for any of his Social Security benefits.

Answer: You’re not eligible to file a restricted application for spousal benefits, which would allow you to claim a benefit based on a husband’s or ex-husband’s benefit while allowing your own benefit to grow. Congress eliminated the restricted application option for people born on or after Jan. 2, 1954. Instead, when you apply for benefits, you’ll be “deemed” to be applying for both your own retirement benefit and any spousal or divorced spousal benefit to which you might be entitled, and will essentially get the larger of the two. You can’t switch later.

Something you should keep in mind: Although your own benefit can grow 8% each year you delay, between ages 66 and 70, spousal benefits don’t earn such delayed-retirement credits. There’s no incentive, in other words, for you to wait beyond age 66 to claim Social Security if the spousal benefit is going to be the larger of the two benefits you could receive.

Social Security claiming rules can be complicated. If you don’t have a trusted financial advisor who is well versed in claiming strategies, consider spending $40 or so for a service such as MaximizeMySocialSecurity.com, which can analyze your particular situation and suggest the smartest option.

Q&A: Social Security strategies vary by age

Dear Liz: My husband has been on Social Security disability since he was 61. He’s now 69 and receives $1,700 a month. I will be turning 66 next year. I still work and want to file for spousal benefits, which would be half of his benefit, but I’m not sure what the best option is. I know I would get $850 a month until I turn 70, when I would get my maximum retirement benefit. Or do I file for my retirement benefit now, which is more than half of my husband’s?

Answer: Since you were born before Jan. 1, 1954, you still have the option of filing a restricted application at 66 for spousal benefits only and then switching to your own retirement benefit when it maxes out at age 70. Since it’s still available for you, you’ll probably want to take advantage of it since you’ll almost certainly get more in total from Social Security that way.

People born Jan. 1, 1954, and later won’t be able to file restricted applications for spousal benefits. Instead, when they apply for benefits, their own retirement check will be compared to their spousal benefit and they’ll get the larger of the two amounts. They no longer have the option of applying just for spousal benefits and then switching to their own benefit later.

Since you’re the higher earner, it makes even more sense to put off taking your retirement benefit as long as possible. Not only will you probably maximize the amount you get, but you’ll also be maximizing the spousal benefit that one of you will have to live on when the other dies. (Remember that at death, one Social Security benefit disappears and the survivor must get by on the larger of the two.)

It’s time to fix Social Security’s tax burden

People on Social Security need a tax break. The rest of us need to make sure they get it — for everyone’s sake.

When Congress made Social Security benefits taxable in 1983, lawmakers didn’t index the tax thresholds to inflation. They “forgot” inflation again when adding a second layer of taxation in 1993.

That means the proportion of recipients who have to pay federal income taxes on their benefits keeps increasing. Initially, only 1 in 10 Social Security recipients had to pay any federal tax. Now, it’s over half.

In my latest for the Associated Press, why this sneaky way of boosting taxes is unfair to those who have already paid their dues.

Q&A: Social Security benefits confusion

Dear Liz: In a past column, you discussed a potentially advantageous option for people who started Social Security early. You wrote that when they reached full retirement age, they could suspend their benefits and allow them to grow by earning delayed retirement credits. I am turning 66 this month and have been collecting Social Security benefits since age 62.

I went to a local Social Security field office to request the suspension but was told this option is not available. They couldn’t provide definitive documentation to support their statements but said that by starting benefits at 62 the option to suspend and earn delayed credits from 66 to age 70 doesn’t apply. Can you please clarify your comments and, if correct, suggest how I might be able to convince the representatives at the local office that it is still an option? I have been speaking to a supposed “expert” at the office, not the first person screening my request.

Answer: Unfortunately, the advice you get from local Social Security offices isn’t always accurate.

The representatives you talked to may be confusing benefit suspension with the so-called “file and suspend” option, which Congress eliminated a few years ago. With file and suspend, a higher wage earner could file an application for benefits and immediately suspend it. This allowed a married partner to start claiming spousal benefits while the higher earner’s benefit could continue to grow. Under current rules, partners can claim spousal benefits only if the primary earner is actually receiving retirement benefits.

For those not familiar with Social Security claiming strategies: It’s generally advantageous to wait as long as possible to apply for retirement benefits. The amount you can get grows at roughly 7% annually between age 62, which is the earliest you can apply, and your full retirement age, which is currently 66 but which will gradually rise to 67 for people born in 1960 and later. Between your full retirement age and age 70, you can earn so-called “delayed retirement credits” that further boost your check by 8% each year.

If you start early and realize you made a mistake, you can suspend your benefits at your full retirement age. Your checks will stop, but you don’t have to repay past benefits. And the amount you receive — although still reduced by your early start — can earn delayed retirement credits.

This probably isn’t a good option if you have other people drawing benefits based on your record, such as spouses or dependent children, because the suspension would stop their benefits as well.

Suspension also is different from the “do over” option that allows you to repay any benefits you’ve received and completely restart the clock on your benefits, as if you’d never started them. That option is allowed only in the first 12 months after your initial application.

Given that your local reps are confused, you should point them to the Social Security Administration’s web page on the matter.

It couldn’t be clearer. The first sentence reads: “If you have reached full retirement age, but are not yet age 70, you can ask us to suspend retirement benefit payments.” The page goes on to say your benefits will be automatically restarted at age 70, when those benefits max out, but you can restart at any time before that if you want.

How women who retire with their husbands often lose out

Women who retire when their husbands do may be giving up more wealth than they realize.

Married women overall are still in their peak earning years in their 50s and early 60s, while married men’s earnings are on the decline, says economist Nicole Maestas, an associate professor of health care policy at Harvard Medical School and the author of a recent study about couples’ income and retirement patterns.

As a result, married women typically sacrifice more Social Security wealth than married men when they retire early, says Maestas, who analyzed the University of Michigan’s Health and Retirement Survey of more than 20,000 people 50 and older.

In my latest for the Associated Press, why women should consider staying employed longer than their husbands.

Q&A: Waiting your way to better retirement benefits

Dear Liz: You recently wrote, “When you apply for Social Security now, you’re ‘deemed’ (considered by the Social Security Administration) to be applying for both your own benefit and any available spousal benefit. If a spousal benefit is larger, you’ll get that, and you can’t switch back to your own later.”

I turn 62 in August and recently visited the Social Security Administration to apply for benefits. I worked for 20 years and earned a benefit of $1,400 a month if I waited to apply at 66. Since I was applying at the earlier age of 62, my benefit is lowered to about $1,000 a month. Half of my husband’s benefit is $1,300 a month but I was told my only choices are to take $1,000 at the earlier age of 62 or wait another four years and take my full benefit at $1,400.

What makes me incensed is that had I not worked at all, I would be eligible to take the higher amount of $1,300 spousal benefit at 62. This makes no sense!

Answer: No, it doesn’t, and it may be because you’re misunderstanding what you were told.

Your spousal benefit is half of your husband’s benefit only if you wait until your own full retirement age, 66, to take it. Social Security benefits are reduced if you start early.

If his benefit is currently $2,600, your spousal benefit now would be about 35% of that, or $904. Since your own benefit reduced for an early start is $1,000, you would get the larger of the two checks, or $1,000. If you wait until your full retirement age, you’ll get a substantially larger check — and it will still be bigger than your spousal benefit.

Q&A: Waiting for Social Security pays off

Dear Liz: My husband (who will retire in January) just turned 67, but still wants to wait to collect Social Security until he turns 70 to maximize his benefit.

Should he apply for Social Security now, and immediately suspend benefits? Or, should he simply wait until he turns 70 years old to apply? Is there a difference?

Answer: There’s no need for your husband to file for benefits now. He will accrue delayed retirement credits for each month he delays filing, and those credits will add 8% a year to his benefit. Not only will that result in a larger check for him, but that could mean a larger survivor’s check for you should you outlive him.