Ask Liz Weston

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Social Security

Q&A: Social Security spousal benefits

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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

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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

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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

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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.

Thursday’s need-to-know money news

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fraud, scam, theftToday’s top story: Habits that can help build your credit. Also in the news: Protecting your data from cyber crooks, the important steps of financial planning, and who’s digging through your credit report?

3 Smart Habits That Can Help Build Your Credit
Habits you should pick up.

Protect Your Data From Cyber Crooks
Tips on keeping your data safe.

The 7 Most Important Steps of Financial Planning
One at a time.

Who Can See My Credit Score or Credit Report?
Who’s digging through your stuff?

Most Americans Can’t Pass This Basic Social Security Quiz
Can you?

Q&A: Breaking even with Social Security

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Dear Liz: This is in regard to the reader who created a spreadsheet that he thought showed the advantage of taking Social Security early. I retired at age 62 and am now 69 and have not yet started drawing my benefits. I have never done a spreadsheet to determine the relative advantage in waiting to draw on my personal benefits; I’ve simply assumed there is no advantage or disadvantage, actuarially. That is, whether I took benefits beginning at age 62 or waited, as I’m doing, the total amount I would receive would be the same if I lived an average life expectancy. Given the fact that my wife would be drawing my benefit if I die first, however, it’s clear that my waiting to age 70 to draw my benefits works to our joint advantage. Am I right?

Answer: In the past, the Social Security Administration advised people that they would receive roughly the same amount by starting reduced benefits early as they would by waiting to receive larger amounts, assuming they lived an average life expectancy.

These days, though, longer life expectancies at age 65 mean that most people will live past the “break even” point where waiting for enhanced benefits results in more money over a lifetime than starting early. The break-even point is in one’s late 70s. Men have a 60% chance of living to age 80 and women have a 71% chance, according to the Society of Actuaries.

When you’re married, you need to think in terms of two life expectancies, because the chances are even better that one of you will live past the break-even point — perhaps well beyond.

With married couples, there’s an 88% chance at least one of you will live to 80, a 72% chance of at least one spouse living to 85 and a 45% chance one will live to 90.

Because a surviving spouse will have to get by on just one Social Security check — either her own or one equal to what her spouse was getting — maximizing at least one benefit makes a lot of sense.

There’s also the idea that Social Security should be used as a kind of longevity insurance. The longer you live, the more likely you are to use up all your other assets, so a bigger check can mean a much better standard of living.