Social Security

Q&A: Social Security spousal benefits

March 16, 2015 By Liz Weston

Dear Liz: I am 61 and going through a second divorce. Would I be able to start drawing my first husband’s Social Security now or would I have to wait till I am 62 later this year? Also, could I draw off my second husband’s work record, since he made more money? Which would benefit me more?

Answer: To qualify for spousal benefits as a divorced spouse, the marriage has to have lasted at least 10 years and your ex must qualify for Social Security retirement or disability benefits. The minimum age to qualify for retirement or spousal benefits is 62.

If your ex is 62 or older but hasn’t applied for retirement benefits, you can receive spousal benefits if you have been divorced at least two years.

Even if you qualify to start benefits early, though, you probably should wait. When you apply for spousal benefits before your own full retirement age of 66, you’re permanently locking yourself into a smaller payment (you’d get 35% of your ex’s benefit, rather than 50%). You also lose the ability to switch to your own benefit later, even if it’s larger.

When you apply early, Social Security forces you to apply for both your own benefit and the spousal benefit. You’re given the larger of the two. If you wait until 66, you can file what’s called a restricted application and get just the spousal benefit, retaining the option to change to your own benefit when it maxes out at age 70.

Most people will live well past the “break even” point where they’ll receive more by delaying Social Security than they would by starting early. More important, a bigger Social Security check also serves as a kind of longevity insurance. The longer you live, the more likely you are to outlive your other assets and end up relying on Social Security for most if not all of your income.

As a single woman, you’re in greater danger of poverty than most retirees. You could wind up living for decades on an inadequate check if you’re not careful about how you claim your benefit.

To find out the amounts you’d get from spousal benefits, call Social Security at (800) 772-1213. Also find out what your own benefit would be at 62, 66 and 70, for comparison purposes.

AARP and T. Rowe Price have free calculators that can help you make this decision.MaximizeMySocialSecurity.com offers a more sophisticated calculator for about $40.

Lies, damn lies and press releases

March 12, 2015 By Liz Weston

A recent press release from an “identity theft protection company” was so filled with misinformation, I had to double-check make sure it wasn’t April Fool’s Day.

Here’s what it said:

The Federal Trade Commission believes ID Fraud will be a significant issue during this tax season. Many people will consider freezing their credit report if they fear they’ve been a victim of ID Theft but national ID theft protection company, Protect Your Bubble, says consumers may want to be patient before going through the the credit freeze process.

Reasons To Rethink Freezing Your Credit During ID Fraud Scare

Here are some reasons you may want to consider for any stories you might be planning around tax season:

If you do put a freeze on your credit report it can take up to a month for the credit bureaus to do the unfreeze
During a freeze, all credit cards are frozen
Your debit card may also be impacted
Consumers may need to go to a cash lifestyle even to pay bills
All of your automated bill payments are then frozen and that can negatively impact your credit even further if/when you miss payment

It goes on, but each of those bullet points is patently, demonstrably untrue. In reality:

Unfreezing a credit report takes a few minutes by phone or online. Credit bureaus have to respond to written requests within three days.
Credit cards are not affected by a credit freeze.
Debit cards are not impacted by a credit freeze (freezes apply to credit reports, not bank accounts).
There’s no reason to go to cash when your credit and debit cards still work.
Automated bill payments aren’t affected, since neither your credit cards nor your bank accounts are altered by a freeze.

When I asked the public relations person who sent out the press release to explain, I got back an apology for for “miswording the bank/credit card payments in the pitch” but then she repeated some of the [baloney]:

If they [individuals] are alerted to the fact that they may have been a victim of ID Theft, they should not rush to freeze their credit report since it can be a lengthy process to unfreeze. Due to the growth in phishing scams consumers need to be cognizant of the realities of what may or may not be taking place.

Um, what?

I tried again, contacting the company itself. This is what I got back:

Upon reviewing the press release, we see how the statement about the payment of bills and credit cards when a credit report is frozen was misleading. You’re correct: A frozen credit account will not prevent you from paying bills. But, I think it’s important to point out that consumers will have a difficult time applying for a new credit / debit card while their account is frozen. In any case, consumers should check with their financial institutions and creditors to verify their unique policies.

I’m not sure why you’d have trouble getting a debit card, unless you were opening a new account and the bank ran a credit check. But the fact that you have to unfreeze your credit reports if you want to apply for a new credit card is indeed a potential downside. It’s a potential downside that wasn’t even mentioned in the press release, however. And the statements weren’t “misleading.” They were wrong. As in “Holy cow, we blew it, this is embarrassing” wrong.

Credit freezes are something you should consider if you’ve already been the victim of identity theft or you’re at high risk because your Social Security number has been stolen or exposed in a breach. Credit freezes pretty much prevent new account identity theft, where someone opens new credit accounts in your name. If you’ve got a freeze in place, you likely won’t need “identity theft protection,” which is an oxymoron anyway because the companies can’t protect you from anything; at best, they can give you early warning and help you clean up the mess. The press release’s suggestion that you hold off on a freeze “until there has been an activity reported against you specifically” is rather witless. Waiting for the bad guys to steal your credit after they’ve got their hands on the keys is like closing the barn doors after the horses have fled.

Credit freezes come with costs. You typically must pay to freeze and unfreeze your reports ($2 to $15 per bureau, depending on your state law, for each freeze and thaw). If you’re planning to apply for credit, change insurers or wireless carriers, or start utility service, you have to remember to thaw your report so those providers can have access. So there’s a hassle factor, but credit freezes won’t mess up your day-to-day financial life.

A final thought: The press release mentions tax season identity theft, a reference to the fact that identity thieves are filing phony tax returns right and left. But nothing–not a credit freeze, and certainly not an “identity theft protection company”–can protect you from that crime. That’s what’s so awful about it. For more, read my Reuters column, “Why identity thieves are targeting your tax return.”

Q&A: Social Security survivor benefits

March 10, 2015 By Liz Weston

Dear Liz: I earned more than my wife, who died at age 57 after 18 years of marriage. When I turn 60, can I take survivor Social Security benefits based on her work record and then request my benefit at age 70?

Answer: In a word, yes, and doing so may be smart.

Survivor benefits are different from spousal benefits, which inflict some severe penalties for starting checks early. When you start spousal benefits before your own full retirement age, you’re locked into a permanently smaller check and you can’t later switch to your own benefit, even if it’s larger. The only way to preserve the ability to switch is to file a restricted application for just the spousal benefit at your own full retirement age (which is 66 for people born from 1943 to 1954 and gradually increases to age 67 for people born in 1955 and later). Then you preserve the right to change to your own benefit when it maxes out at age 70.
With survivor benefits, starting early means a reduced check — your widower benefit at 60 would be 30% smaller than if you waited until your full retirement age — but you can switch to your own benefit later. And if you don’t work, starting survivor benefits at 60 is the better course, said economist Laurence Kotlikoff, coauthor of “Getting What’s Yours: The Secrets to Maxing Out Social Security.”

“Getting a reduced benefit for 10 years, from 60 to 70, is better than getting an unreduced benefit for fewer years,” Kotlikoff said.
If you work, however, the math becomes less clear. When you start benefits early, your check is reduced $1 for every $2 you earn over a certain limit, which in 2015 is $15,720. That penalty disappears once you hit your full retirement age.

Online calculators can help you determine the best Social Security claiming strategy. AARP and T. Rowe Price are among the sites that provide free calculators, but they don’t factor in survivor benefits. Consider spending about $40 for one of the more sophisticated calculators, such as Kotlikoff’s MaximizeMySocialSecurity.com, that can include this important benefit.