Ask Liz Weston

Get smart with your money

Social Security

Social Security’s divorce and survivors benefits for same-sex married couples

By

gay-marriage-cake-toppers-485x320Same-sex marriage has been legal long enough in a couple of U.S. states that its pioneers may qualify for Social Security benefits even if they divorce.

Marriages that last at least 10 years before they end qualify the participants for both spousal and survivor benefits from Social Security. Spousal benefits equal up to half the benefit a spouse or ex-spouse has earned, while survivors benefits typically are equal to what the spouse or ex-spouse was receiving at death.

More information on the benefits available to same-sex married couples can be found in my column for Bankrate.

Also on Bankrate, I answer a reader’s question about using her 401(k) account to delay taking Social Security benefits. And on Reuters, I take a look at why parents are spending more and worrying less about college.

Q&A: File and suspend strategy for Social Security

By

Dear Liz: You recently wrote an interesting piece regarding the “file and suspend” strategy for Social Security benefits. I liked the possibility of getting a lump sum if I should need the money downstream.

But when I checked with Social Security, I was told that the lump sum maximum was six months of suspended payments. Am I missing something? My understanding was that I could collect all the suspended payments if need be. Is there a specific code I could reference to our Social Security office to clear this matter up?

Answer: You’re not missing something. The Social Security representative you talked to is confusing retroactive benefits with the reinstatement of benefits that were voluntarily suspended.

When you file for benefits after your full retirement age (currently 66), the maximum lump sum you can get is six months’ of missed benefits.

When you “file and suspend” your application at or after full retirement age, however, you can end the suspension at any time and get a lump sum for all the benefits you missed.

Unfortunately, the misinformation you received isn’t unusual.

Financial planners around the country have reported running into Social Security reps who insist that only six months’ of benefits are available to people who file and suspend, which isn’t true.

The procedure is outlined in the Social Security Administration’s “Program Operations Manual System” under GN 02409.130 Voluntary Suspension Reinstatement

It’s also described in plain English on Social Security’s site: “If you change your mind and want the payments to start before age 70, just tell us when you want your benefits reinstated (orally or in writing). Your request may include benefits for any months when your payments were suspended.”

The ability to file and suspend, then change your mind, is an important protection for those who understand the important role Social Security plays as longevity insurance.

The smartest course is often to let your benefit grow to its maximum amount, taking advantage of the “delayed retirement credits” that increase your benefit 8% annually between your full retirement age (currently 66) and age 70.

If you should later find yourself in need of the money, you can get a lump sum payout for the missed benefits back to the day you filed and suspended, if you want.

But opting for the lump payment means you lose your delayed retirement credits for that period. In other words, if you ask for a lump sum dating back to your initial filing, your monthly benefit is reset to the smaller amount you would have gotten then.

Q&A: Social Security spousal benefits

By

Dear Liz: I started my Social Security benefits at 66 and am now 70. I was married for 23 years and have not remarried.

When I ask about spousal benefits, I am told that my own monthly benefit is too high to get benefits based on my ex’s work record. My monthly benefit is only $1,509, my 401(k) has tanked, and I am surviving on less and less available part-time work.

I was told further that I can apply once my ex passes away and then it won’t matter how high my income is. Could that be correct? What is the exact cut-off amount to get spousal benefits?

Answer: Many people misunderstand the way spousal benefits work, and they think that they can get an additional check on top of their own retirement benefit. That’s not quite how it works.

Essentially, Social Security compares the amount of your retirement benefit with what you would get as a spouse or divorced spouse and gives you the larger of the two. Spousal benefits are up to half of what your spouse or ex receives.

If your ex’s benefit is $2,000 a month, for example, your spousal benefit could be $1,000, which is less than you’re getting now. If your ex dies, however, you can apply for a survivor benefit that equals what he or she received — in this example, $2,000 a month.

3 retirement strategies whose days may be numbered

By

105182624Social Security used to offer a “do over” to people who erred by starting benefits too early. Instead of being locked into substandard payments for life, those who had the cash could pay back all the benefits they had received and start over with a new, permanently higher payment. Advisors to the wealthy discovered their clients could start payments early, invest the money and pay the principal back at age 70, getting in effect an interest-free loan from the government plus a higher benefit.

As awareness of the tactic spread, Social Security moved to shut it down. Today Social Security recipients can still reset their payments, but they can only do so within 12 months of starting benefits.

A similar fate may await three other retirement “loopholes”–backdoor Roths, stretch IRAs and certain Social Security claiming strategies–that have become increasingly popular as financial advisors learned how to exploit kinks in the law. Read more in my Reuters column this week, Three retirement loopholes likely to close.

Elsewhere on the Web, I wrote two pieces for Bankrate about aging parents: Caring for Elderly Parents When They’re Far Away, based in part on experiences with my dad, and How to Sell Your Late Parent’s Possessions, where I interviewed a woman faced with disposing a massive amount of stuff accumulate by her dad.

Monday’s need-to-know money news

By

imagesToday’s top story: The money mistakes you make in your 40’s. Also in the news: What financial documents you should keep, what every college grad needs to know about money, and the important things you need to know about Social Security.

Money mistakes you make in your 40s
A crucial time for your financial future.

What financial documents to keep
What to keep and what to shred.

10 Things Every College Grad Needs To Know About Money
It’s a whole new world.

4 Important Things You Need to Know About Social Security
Finding your way through the maze.

Q&A: Social Security

By

Dear Liz: My husband decided we should take Social Security before age 65. I worked intermittently until 67. I do not get half of his Social Security as do many women who never worked. Can you explain why?

Answer: The reason is probably because your own benefit is greater than what you would get as a spouse.

When you apply for Social Security early and have a qualifying work record of your own, you are “deemed” to be applying for both your benefit and any spousal benefit to which you might be entitled. You’re essentially given the larger of the two.

Both potential benefits are reduced by the fact that you applied early, and you lost the option of receiving just a spousal benefit for a few years before switching to your own benefit.

This “claim now, claim more later” strategy could have substantially boosted your checks and the lifetime amounts you received from Social Security.

The decision to apply early can be a costly one and shouldn’t be made without fully understanding the consequences.

A recently published book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” does a good job of explaining the options. Consulting a fee-only financial planner who is up to date on claiming strategies is a smart idea as well.