Ask Larry: What's the Best Age to Take Spousal or Survivor Benefits?
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Larry Kotlikoff's Social Security original 34 "secrets", his additional secrets, his Social Security "mistakes" and his Social Security gotchas have prompted so many of you to write in that we now feature "Ask Larry" every week.
We are determined to continue it until the queries stop or we run through the particular problems of all 78 million Baby Boomers, whichever comes first. Kotlikoff's state-of-the-art retirement software is available, for free, in its "basic" version. His considerable and often very useful output is available on his website.
Shannon Baxter: I am 53 years old. In my early thirties, I received a notice from Social Security that advised I had reached the maximum and full contribution required for Social Security participation. I realize that deductions would still be taken from paychecks, but why should I feel the increases legislated for this deduction if I have already maximized for participation? Any insights?
Larry Kotlikoff: You become eligible to receive a retirement benefit after you contributed for 40 quarters, but the more you contribute the higher your benefit may be.
Social Security considers your highest 35 years of covered earnings -- earnings up to Social Security's taxable maximum, which this year is $113,700. If your covered earnings this year are large enough to count among your highest 35 years, your benefit will be larger when you start collecting. So you haven't necessarily maxed out your benefit.
Kayla -- Campobello, S.C.: My dad has brain cancer and is getting his Social Security check. My mother also gets a disability check. When can my mom get his check and will hers be canceled out?
Larry Kotlikoff: Very, very sorry about this terrible situation. Your mom will be able to collect a survivor benefit equal to your dad's Social Security check when he passes, if she is 60 or over. But if she takes it before her full retirement age, it will be reduced. So she probably will want to wait until full retirement.
If she is between age 60 and 62 and applies for a survivor benefit, although again, this is probably the wrong move in terms of maximizing her lifetime benefits, I believe she'll get both her Disability Insurance (DI) check and her reduced survivor benefit.
If she continues to collect her DI check after reaching age 62, Social Security will treat her DI benefit as a retirement benefit and pay her in total the larger of A, her DI benefit, or B, her reduced survivor benefit.
And if her survivor benefit (B) exceeds her Disability Insurance (A), they will, nonetheless describe her survivor benefit as their giving her A (her DI) plus a redefined survivor benefit equal to B-A.
Let's look at two different scenarios:
Scenario 1: Your mother's Disability Insurance is $1000 a month and her survivor benefit is $800 a month. As I stated she will receive the larger of the two. So, she will receive her DI benefit of $1000 a month. And once she is 62 years old, this will be considered her retirement benefit.
Scenario 2: Let's consider the reverse. Your mother's Disability Insurance is $800 a month and her survivor benefit is $1000 a month. Your mother would receive the larger of the two, so she would still receive $1000, however, the accounting would be different. $800 would be considered her DI benefit and the remaining $200 will be considered the "reduced" or "redefined" survivor benefit.
If your mom has other resources and is under age 62, her best option may be to discontinue her DI benefit at 62, wait until full retirement age, which would be 66 in her case, to collect her unreduced survivor benefit and then apply for her own retirement benefit at 70.
This will likely equal the DI benefit she is now getting -- adjusted for inflation -- plus a 76 percent kicker thanks to her having waited eight years to start collecting her retirement benefit. This said, what's best for her requires care calculation.
Tolbert -- Willingboro, N.J.: If you are 62, widowed and still working full-time, when is the best time to take the spousal or survivor's benefit? My husband died in 2001. When is the best age or time to retire from full time employment and start collecting Social Security benefits?
Larry Kotlikoff: Without knowing all the details, my guess is you should wait until full retirement age and take your unreduced survivor benefit. Wait until age 70 to apply for your retirement benefit, at which point it will be as large as possible. See my previous posts for the reasoning, especially this one.
Paula Fox -- Salt Lake City, Utah: In order to continue funding Social Security, why isn't the maximum taxable earnings limit simply increased to, say, $300,000 or more?
Larry Kotlifkoff: Rich people don't like to pay for poor people. It is that simple. Also, the poor get a much better deal from Social Security because the benefit formula is highly progressive. So the rich feel, with some justification, that they are already doing their share for the poor through Social Security.
Stated differently, although the payroll tax funding Social Security is highly regressive, the benefit formula is highly progressive. Finally, many think it's unfair to change the rules in midstream.
Jenelle -- Dunnellon, Fla.: My spouse and I are collecting Social Security Disability (SSD). If my spouse dies, will I be able to collect hers and if so, will I get the full amount she is getting on SSD? And if we are both over the age, can I collect mine and hers?
Larry Kotlikoff: If, as I'll assume, you are under age 60 and your spouse dies prior to your reaching 60, you can, I believe, collect, until you reach age 62, both your DI and a reduced survivor benefit equal to your spouse's DI check multiplied by a reduction factor.
But if you do this and, after reaching age 62, keep taking your own DI, you'll get the larger of A., your own DI and B., your reduced survivor benefit. If B exceeds A, you'll get A plus B-A, which is a so-called redefined *survivor benefit. *See my answer above, in which I outline two different scenarios.
You have the option of discontinuing your DI benefits at 62. If you were a decent earner before becoming disabled, you could discontinue your DI benefit at 62, then wait until full retirement age to take your unreduced survivor benefit and then at 70, go for your highest possible retirement benefit.
Or you might continue to take your DI benefit through full retirement age, which Social Security will treat as you taking your retirement benefit, and then take your unreduced survivor benefit, assuming your spouse passes away in the near term. Unfortunately, it's impossible to say which is best without knowing all the details.