spousal benefits Archives - Page 3 of 4

April 13, 2014 By Liz Weston

Social security switch

Dear Liz: When I turned 66, I applied for and then suspended my Social Security benefits so that my husband could take spousal benefits based on my work record. Shortly after he turned 69, he decided to start taking his full benefit from his own work record, so we canceled the spousal benefits.

After he applied to take his full benefit, I applied for spousal benefits from his account. Since I am only 67, the plan was for me to collect spousal benefits until I reached 70 and then collect off my account. Since I am the primary breadwinner, that allows the maximum lifetime funding should something happen to either of us. I sat with an employee at the local Social Security office. Together we processed all the appropriate documentation and she submitted it.

I just received a notice of denial that says, “We cannot approve your request because we received it after the 12-month limit.” I took the letter to the Social Security office for an explanation, and the woman had never heard of the rule it cited. The rule, it turns out, was designed to prevent people from repaying all the benefits they’ve received over the years so that they can restart their benefit at age 70. The rule says that they can pay back only benefits received in the prior 12 months to restart their benefits. But that is not what I did.

Answer: No, it’s not, but what you tried to do still won’t work.

Here’s the simplest way to explain it: There’s only one spousal benefit for each couple. Once you filed for your own benefit, allowing your husband to claim spousal benefits, you aren’t allowed to switch even though you hadn’t started receiving checks yet.

If it’s any consolation, you chose the right spouse to receive spousal benefits, since you’re the higher earner. It would have been best if your husband had waited to switch at age 70, when his benefit reached its maximum, but his checks are still substantially larger than they would have been if he had started earlier.

Another point that should be made because it’s often misunderstood, is that your husband was allowed to switch from spousal benefits to his own benefit because he started Social Security at or after his own full retirement age. If he’d started benefits before his full retirement age, which is currently 66, he would have been stuck with a discounted spousal benefit and couldn’t have switched to his own benefit later.

Filed Under: Couples & Money, Q&A, Retirement Tagged With: Retirement, Social Security, spousal benefits

March 13, 2014 By Liz Weston

You may not be as smart as you think you are

Most people are better off delaying the start of their Social Security benefits as long as possible. That’s the consensus of the AARP, financial planners and researchers who have studied the thousands of different claiming options. In fact, the benefits of putting off Social Security have grown in recent years, thanks to low interest rates, gains in longevity and changes in the law since the 1990s.

Still, every time I pass along the advice that waiting is better, I hear from those who just refuse to believe it. They focus on breakeven points rather than longevity risk; they don’t factor in spousal or survivor benefits; they underestimate how much their benefit can grow with even a few years’ delay.

So when Financial Engines approached me with the results of a recent survey, I just nodded my head in recognition. Their poll found that most people nearing retirement are confident that they can make smart Social Security claiming decisions–but that most do poorly on a test that measures their understanding of basic Social Security claiming concepts. You can read more about it in my column this week for Bankrate, “Are you Social Security smart? Guess again.”

My best advice is that before you claim Social Security, use some of the software tools that are available to help you evaluate your options. The AARP has a good calculator here. If you want to play with the numbers and assumptions a bit more, MaximizeMySocialSecurity.com has software that will really let you get your geek on; a one-year license is $40. You also can talk to a fee-only financial planner who is savvy about claiming strategies.

Here are two things you should know:

1. If you’re married (and that includes you same-sex couples, if you file in a state that legally recognizes your marriage), you have unique opportunities to maximize your lifetime benefits and protect your surviving spouse from poverty. The difference between the best claiming strategies and the worst can be $250,000. No, that’s not a typo.

2. Social Security is not going to disappear. The program is simply too popular and its problems, though real, are not insurmountable. Even if Congress does nothing, the system can still pay out 75% of the benefits promised just from the taxes it will collect. If Congress does do something, the changes almost certainly won’t affect near-retirees but will instead change benefits for younger taxpayers. Signing up for benefits as soon as you’re eligible in order to “lock in” your checks will just lock you in to a much lower payment, for life.

If you’re one of those people who likes to dive into the academic research surrounding claiming strategies, here are a few articles to check out:

“Recent Changes in the Gains from Delaying Social Security.” This article in the Journal of Financial Planning demonstrates how changes in interest rates, longevity and the benefit formula have dramatically improved the benefits from delaying Social Security claims.

“How the Social Security Claiming Decision Affects Portfolio Longevity.” Researchers William Meyer and William Reichenstein have done a lot of research on Social Security claiming strategies, and in this Journal of Financial Planning article they use a sophisticated model that factors in taxes to weigh how delaying Social Security can help retirees make their savings last longer.

“Should You Buy an Annuity from Social Security?” This brief from Boston College’s Center for Retirement Research explains why it often makes sense to tap retirement savings so that you can delay the start of Social Security benefits.

“When Should Married Men Claim Social Security?” This article, also from the Center for Retirement Research, should be required reading for any married couple thinking of starting benefits early. It does a great job of summarizing potential spousal and survivor benefits–and of making the point that starting too early can leave your surviving spouse in a world of hurt.

Filed Under: Liz's Blog Tagged With: longevity, longevity insurance, Social Security, Social Security Administration, Social Security benefits, spousal benefits, survivor benefits

February 18, 2014 By Liz Weston

Don’t obsess about Social Security “breakeven”

Dear Liz: I read your recent article in which you advised waiting before starting Social Security benefits. Is this good advice for everyone? You probably know that there is a break-even age around 85, so that if you die before 85, starting benefits early is better, but if you die after 85, starting late is better. “Better” means you receive more money. So, right off the bat the advice to delay is wrong for half the people in their 60s, since about half will die before the crossover, and if they had delayed, they lost money.

Answer: The problem with do-it-yourself financial planning is that people often focus their attention too narrowly and ignore the bigger picture. That’s what leads them to do things like pay down relatively low-rate student loan debt while failing to save for retirement. They may focus only on the expected returns of each option, while ignoring the tax implications, company retirement matches and the extraordinary value of future compounding of returns.

Obsessing about the break-even point — the date when the income from larger, delayed retirement benefits outweighs what you’d get from starting early — is often a mistake, financial planners will tell you. There are a number of other considerations, including the value of Social Security benefits as longevity insurance. If you live longer than you expect, a bigger Social Security check can be enormously helpful later in life when your other assets may be spent. Also, if you have a spouse who may be dependent on your benefit as a survivor, delaying retirement benefits to increase your checks will reduce the blow when she has to live on just one check (yours) instead of two (yours and her spousal benefit).

In his book “Social Security for Dummies,” author Jonathan Peterson offers a guide to figuring out your break-even point based just on the dollars you can expect to receive (rather than on assumed inflation or investment returns). In general, the break-even point is about age 78. That means those who live longer would be better off waiting until full retirement age, currently 66, than if they started early at age 62.

Currently, U.S. men at age 65 can expect to live to nearly 83, and the life expectancy for U.S. women at age 65 is over 85.

You can change that break-even by making assumptions about inflation and your future prowess as an investor, but remember that the increase in benefits you get each year by delaying retirement between age 62 and 66 is about 7%. It’s 8% for delaying between age 66 and age 70, when your benefit maxes out. Those are guaranteed returns, and there’s no “safe return” anywhere close to that in today’s environment.

Don’t forget that those benefits will be further compounded by cost-of-living increases. One researcher published in the Journal of Financial Planning found that an investor would have to achieve a rate of return that exceeds inflation by 5% to justify taking benefits at 62 rather than at full retirement age.

“At higher inflation rates and/or higher marginal tax rates, the rate of return may need to be even higher, perhaps in excess of 7% or 8% above inflation to justify taking benefits at age 62,” wrote Doug Lemons, a certified financial planner who retired from the Social Security Administration after 36 years.

You can read Lemons’ paper, as well as other research that planners have done on maximizing Social Security benefits, at http://www.fpanet.org/journal.

Filed Under: Q&A, Retirement Tagged With: longevity, longevity insurance, Social Security, Social Security Administration, Social Security benefits, spousal benefits, survivor benefits

December 9, 2013 By Liz Weston

Your payout from Social Security and Medicare

A reader recently wondered what the average person could expect from Social Security, compared to the taxes we pay into the system.

Urban Institute has done the math, and recently released “Social Security and Medicare Taxes and Benefits Over a Lifetime: 2013 Update.” The institute figured out net present values of money paid in and paid out for various situations: single male and single female, one-earner family, two earner families. Spoiler alert: in most situations, people in the simulations pay more in Social Security taxes than they get back in benefits–but they get back vastly more Medicare benefits than they pay in taxes. Overall, benefits received exceed taxes paid. Here’s one example with a cogent comment from the Wall Street Journal:

Consider: A one-earner couple with a high wage ($71,700 in 2013 dollars) retiring in 2015 can expect lifetime Social Security benefits of $640,000. The same couple can expect to get $427,000 in lifetime Medicare benefits—while paying only $111,000 in Medicare taxes. The latter figures help illustrate how Medicare, in particular, is expected to strain future federal budgets.

The report, which you’ll find here, is interesting reading. Obviously, there are caveats. Nobody can know for sure what his or her Social Security “payout” will be, since a lot depends on longevity. And that brings me to the most important point: it’s really not about money in, money out.

Social Security isn’t an investment scheme. It’s insurance. (The formal name for what we know as Social Security is Old Age, Survivors, and Disability Insurance or OASDI). It’s insurance against poverty, against outliving your assets, against a downturn in the market at the wrong time that could leave you with too little money on which to live. You still should save and invest as much as you can on your own, but Social Security provides a safety net in case things don’t go as planned.

Filed Under: Liz's Blog Tagged With: Medicare, Social Security, Social Security Administration, Social Security benefits, spousal benefits

September 3, 2013 By Liz Weston

Spousal vs. survivor benefits: the key differences

Dear Liz: I am 66 years old. When I was 60, my husband of 42 years died. He was a banker with more than 40 years of work history at a good income level. I remarried a year later. When I was 62, I was downsized and took early Social Security benefits based on my first husband’s earnings record. This amounts to about $2,000 a month. It would have been about $2,500 at full retirement age (66) and about $3,000 at age 70. I was not advised about survivor’s benefits at all or about any variance of survivor’s benefits versus Social Security based on my deceased husband’s earnings. Do you think I would have gotten a bigger benefit amount if I had taken survivor’s benefits at age 62?

Answer: No, because survivor’s benefits are what you’re getting.

Both spousal benefits and survivor’s benefits are based on the earnings record of the other person in a couple (whom we’ll call the “primary earner”). The maximum spousal check is 50% of the primary worker’s benefit. As with other Social Security benefits, the amount you get is permanently discounted if you apply before your own full retirement age.

Spousal benefits are available to current and former spouses, although former spouses must have been married for at least 10 years to the primary earner and must be currently single. (In other words, you can’t have remarried, unless that marriage has ended as well.)

Survivor’s benefits, on the other hand, can be up to 100% of the primary worker’s benefit. Survivor’s benefits based on a deceased spouse’s earnings record are not available to those who remarry before age 60, but can be claimed by those who remarry after that point.

Since the biggest Social Security benefit is around $2,500 a month and you’ve remarried, it’s clear that what you’re getting is the survivor’s benefit, discounted because you applied early.

Filed Under: Q&A, Retirement Tagged With: divorced spouse benefits, Social Security Administration, Social Security benefits, spousal benefits, survivor benefits

August 14, 2013 By Liz Weston

Divorced retiree entitled to spousal Social Security benefits

Dear Liz: My daughter, 63, has been recently amicably divorced and receives a small alimony ($1,000). Her ex-husband of 30 years is a doctor who just retired. Is she entitled to part of his Social Security? Neither has remarried.

Answer: Because they were married for more than 10 years, your daughter should qualify for spousal benefits, which can equal up to half of her ex’s benefit at his full retirement age. That amount would be permanently discounted if she applies before her own full retirement age (which is 66).

The ex’s marital status doesn’t matter, although your daughter’s does. If she remarries, she will lose access to spousal benefits as a divorced spouse. This is just one of the ways that spousal benefits differ from survivor’s benefits, which are based on 100% of the earner’s benefit and which widows and widowers can receive even if they remarry after age 60.

Filed Under: Q&A, Retirement Tagged With: divorced spousal benefits, divorced spouse benefits, Social Security, Social Security Administration, Social Security benefits, spousal benefits

August 1, 2013 By Liz Weston

Spousal vs. survivor benefits: a primer

Judging from emails and comments, plenty of people are confused about how Social Security benefits for spouses and ex-spouses are supposed to work. That’s unfortunate, since these benefits can help many people get larger checks than what their own earnings record will give them. If you are or ever have been married to someone whose earnings are substantially greater than your own, you need to know how this works.

First, some basics. Spousal and survivor benefits are based on the work record of what I’m calling the “earner” (the other spouse). You can’t get both your own benefit (based on your work record) AND a full spousal or survivor benefits on top of that. You typically get the largest benefit for which you qualify. (In some cases, you’ll get your own benefit plus an amount that together equals the largest benefit for which you qualify.)

Here are a few key points:

Spousal benefits (for current and former spouses) are based on 50% of the earner’s benefit at the earner’s full retirement age. Full retirement age is currently 66 and will be 67 for people born after 1960. If the spouse applies for benefits before the spouse’s own full retirement age, the benefit will be permanently discounted.

If you’re currently married, the earner must have already applied for Social Security benefits for you to apply for spousal benefits. The earner does have the option to “file and suspend,” where the earner applies for benefits and then immediately suspends the application. That allows the spouse to apply for spousal benefits while the earner’s benefit can be left alone to grow.

If you’re divorced (but were married at least 10 years and haven’t remarried), the earner needn’t have applied to start Social Security benefits but the earner needs to be at least 62. If you remarry, you can’t apply for benefits as a divorced spouse unless that subsequent marriage ends.

Spousal benefits don’t reduce what the earner receives (or what other current and former spouses may receive).

If you wait until your own full retirement age to apply, you can start receiving spousal benefits and then switch to your own benefit when it maxes out at age 70. For high earners, this “claim now, claim more later” can add tens of thousands of dollars to the lifetime amounts you receive from Social Security. If you start benefits early, however, that option isn’t available to you.

Survivors benefits (for current and former spouses) can be up to 100% of the earner’s Social Security benefit. If the earner hadn’t begun receiving Social Security checks, the survivor’s benefit is based on what the earner would receive at full retirement age. If the earner was receiving Social Security when he or she died, the survivor’s benefit is based on that amount the earner was actually receiving. (This is why it’s often smart for the bigger earner to delay starting Social Security at least until full retirement age, if not longer, especially if the earner’s survivor will depend on that benefit.)

As with other Social Security benefits, applying for survivor benefits before you reach your own full retirement age will result in a reduced check. However, with survivor’s benefits, you can receive a reduced check as early as age 60. (The earliest you can get spousal benefits is 62.) The starting age is even earlier—50—if you are disabled and the disability started before or within 7 years of the worker’s death, or at any age if you take care of the deceased earner’s child who is under age 16 or is disabled and receives benefits on the worker’s record.

Unlike spousal benefits, a late remarriage won’t cut off your checks. If you remarry after you reach age 60 (or age 50 if you’re disabled), that marriage will not affect your eligibility for survivors benefits.

AARP has a primer about how to maximize your Social Security benefits that’s well worth reading. T. Rowe Price has a free calculator to help you determine the best time to take benefits. If you want a more robust tool, check out www.MaximizeMySocialSecurity.com for a $40 version that allows you to play with more

Filed Under: Liz's Blog Tagged With: divorced spouse benefits, Social Security, Social Security benefits, spousal benefits, survivor benefits

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