Social Security

Q&A: Public pension and Social Security

December 7, 2015 By Liz Weston

Dear Liz: I am one of the thousands of adjunct faculty who teach in our nation’s colleges. We are paid on an hourly or per-class basis. We therefore earn a fraction of what tenured faculty earn. I am covered by a state teachers pension, but my anticipated benefit, even after 30 years of teaching, will not exceed $1,500 per month. I have qualified for a modest Social Security benefit of perhaps $1,000, accrued through years of part-time work as a student and graduate student. I have been told that my Social Security will be reduced because of my teacher’s pension.

Surely this cannot be correct. I understand that if I were collecting a generous state or military pension, I would not need Social Security. However, without my Social Security, my teacher’s pension will not even lift me above the poverty level. Isn’t there some sort of “means testing” before they slash your Social Security benefit?

Answer: You were informed correctly. When you receive a pension from a job that didn’t pay into Social Security, any Social Security benefit you did earn may be reduced (but not eliminated).
Before the creation of the Windfall Elimination Provision, people who received pensions based on earnings not covered by Social Security often got a proportionately larger benefit than those who paid into the system their entire working lives.

The Social Security site has a chart and a calculator to help you understand how your benefit might be affected. The chart shows that if you reached age 62 this year and you had fewer than 20 years of so-called “substantial earnings” covered by Social Security, your monthly benefit could be reduced by up to $413 or half of your teacher’s pension, whichever is less. Limiting the offset to half protects people who get small pensions from having too much of their Social Security benefit wiped out. Substantial earnings are wages equal to or above a certain amount each year ($22,050 for 2015) from jobs that paid into Social Security.

Based on the information you provided, your pension and Social Security income would total just over $2,000 a month. That’s not a lot, but the average Social Security check in 2015 was about $1,300. The poverty threshold in 2015, meanwhile, was $980 per month for a one-person household and $1,327.50 for a two-person household.

Q&A: Social Security survivor’s benefits

November 23, 2015 By Liz Weston

Dear Liz: I am 64 and have been divorced over 22 years. My former husband passed away two years ago at the age of 62. Our marriage lasted more than 10 years and neither of us remarried. I went to the local Social Security office after he passed away, but the official there said I was not entitled to any claim for benefits on my ex’s work record. From what I have been reading, that may not be true. Are you able to clarify this for me? I am not able to get any firm answers, even from my financial advisor. My ex worked for a private employer his whole career, so he would have paid into Social Security. I recently lost my job, so the money would be helpful.

Answer: You qualified for benefits — but what the official may have meant was that you wouldn’t receive anything.

If you were still working at the time you inquired, any Social Security check would have been reduced by $1 for every $2 you earned over a certain amount ($15,120 in 2013). In other words, your benefit could have been wiped out had you earned enough. The earnings test ends at full retirement age (currently 66).

Survivor’s benefits are based on the amount that the deceased worker had been receiving if he’d started benefits or, if he hadn’t, what he would have received at full retirement age. The amount is reduced if survivors start benefits before their own full retirement age.

These benefits are available to both current and divorced spouses starting at age 60, or 50 if they’re disabled, or at any age if they’re caring for a child under 16 who is getting benefits based on the former spouse’s work record. To qualify for divorced survivor’s benefits, the marriage must have lasted 10 years. Your ex’s remarriage would not have affected this benefit. Neither would your own, since you were over 60 when he died.

Survivor’s benefits have more flexibility than spousal benefits or divorced spousal benefits, which are typically about half what the worker receives. You can switch from survivor’s benefits to your own retirement check, or vice versa, even if you start early. With spousal benefits, an early start typically locks you into a permanently reduced check.

You can start survivor’s benefits now or you can start your own benefit and switch to the survivor’s benefit at 66, if that would be larger, said economist Laurence Kotlikoff, who runs the claiming strategy site MaximizeMySocialSecurity.com.

You also need a new financial advisor — one who can be bothered to answer your questions. People who are retirement age should find advisors who are willing to put clients’ needs first and to educate themselves about Social Security claiming strategies.

Q&A: More on Social Security rule changes

November 16, 2015 By Liz Weston

Dear Readers: The changes Congress made to the “claim now, claim more later” Social Security strategy generated so many questions from readers that I’m devoting a second column to answering some of those queries. Next week, we’ll get back to the usual mix of personal finance topics.

Dear Liz: I am divorced after being married for 27 years and have not remarried. I was planning to file for early retirement benefits at 62 (I’m 58 now) on either my own or my ex-spouse’s record.

Then at full retirement age, I would switch to the other record, depending on which would be a larger monthly amount. Do the new rules affect early retirement claims the same as they affect suspended benefit claims?

Will I be able to file for early retirement benefits on the smaller payout, then change to the larger at full retirement age using the divorced spousal filing for one of the times?

Answer: The rules never allowed you to do what you’re proposing to do.

If you file for benefits before your own full retirement age, you’re deemed to be applying for both your own retirement benefit and a spousal benefit, and essentially given the larger of the two.

Your benefit would be permanently reduced because of the early start and you wouldn’t have the option to switch later.

The “claim now, claim more later” strategy that Congress targeted involved waiting until full retirement age (66 to 67, depending on your birth year) and then filing a restricted application for spousal benefits only.

That allowed you to collect an amount of up to half the benefit earned by your spouse or ex-spouse. Then you could switch to your own benefit at age 70, when it maxed out, if that benefit was larger.

The rules have now changed so that people who haven’t turned 62 by the end of this year, like yourself, will no longer be allowed to file that restricted application.

Dear Liz: I turn 66 next year. My wife is 63 and receiving Social Security benefits. When I turn 66, can I file a restricted application for spousal benefits?

Answer: Yes. People who are 62 or older by the end of this year still have the option to file a restricted application for a spousal benefit.

That is as long as the “primary worker” (in this case, your wife) is receiving benefits or was able to “file and suspend” before the May 1, 2016, deadline.

Filing for retirement benefits and then immediately suspending the application meant the filer’s benefit could continue to grow while still allowing the spouse to claim a spousal benefit.

Dear Liz: I was married for 23 years and divorced in 2009. I was told by the IRS about a year ago that when I turn 66, as long as I am still working I can collect half of my former husband’s Social Security until I turn 70. Is that still true with the new rules? I am 62.

Answer: You shouldn’t be asking the IRS about Social Security strategies. They have a hard-enough time answering people’s questions about taxes.

Your employment status has nothing to do with being able to get a spousal benefit.

When being employed matters is when you start Social Security benefits before full retirement age. If that’s the case, your check will be reduced by $1 for each $2 you earn over a certain amount (which is $15,720 in 2015 and 2016). That “earnings test” ends when you reach full retirement age (which in your case is 66).

Now, on to heart of your question — and the weird incentive Congress just gave people to get divorced.

Since you’re 62, you’ll still be allowed to file a restricted application for spousal benefits at 66.

If you’re still unmarried at that point, your spousal benefit will be based on your former husband’s earnings record. If you remarry, though, your spousal benefit will be based on your current husband’s record.

If you remarry, your husband will have to be receiving benefits or have filed and suspended by May 1 for you to receive spousal benefits. If you don’t remarry, your ex just has to be old enough to receive Social Security — 62 or above.

So married couples now have an incentive to split up, said economist Laurence Kotlikoff, coauthor of the book “Get What’s Yours: The Secrets to Maxing Out Your Social Security.”

If they divorce, one of them can put off starting Social Security benefits, but the other can start spousal benefits — something he or she couldn’t do if still married.

To qualify for divorced spousal benefits, the marriage had to have lasted at least 10 years, the divorce must be at least 2 years old, and the person applying for spousal benefits must not be remarried.

The end to file-and-suspend: Sorry about that

October 28, 2015 By Liz Weston

In June, I wrote a column predicting that Congress eventually would do away with “file and suspend” and other Social Security claiming strategies that the Obama Administration had labeled as “aggressive.” I thought it would take years for lawmakers to act. But the end was closer than many of us thought.

The budget deal quickly moving through Congress would eliminate new file-and-suspend applications 180 days after the bill is signed into law, according to the Fiscal Times. That change could shave as much as $50,000 off the lifetime benefits of couples who were planning to use the strategy to maximize their benefits, according to Laurence Kotlikoff, co-author of the book “Get What’s Yours: The Secrets to Maxing Our Your Social Security.”

If you don’t know, file-and-suspend was created in 2000 as a way to encourage people to keep working. Before that time, primary earners had to apply for their own retirement benefits before their spouses could apply for spousal benefits. With file-and-suspend, primary earners could put off actually receiving their Social Security, allowing their checks to grow, while still allowing their partners to get spousal benefits.

Spousal benefits were created with low- or non-earning spouses in mind, but financial advisors soon discovered file-and-suspend was also a good way to maximize benefits for two high-earning spouses. One could collect “free money” in the form of a spousal benefit before switching to his or her own benefit when it maxed out at age 70.

The growing popularity of the strategy pretty much doomed it. Five years ago, the Center for Retirement Research has estimated that file-and-suspend could cost as much as $9.5 billion each year. The more advisors learned about it, and the more people like me wrote about it, the more strain we were putting on an already troubled system.