How to Take Social Security If You Earn a Lot More than Your Spouse
By Larry Kotlikoff
If you make more than your spouse, Larry Kotlikoff explains that you may want to consider a couple of strategies to ensure you both maximize your Social Security benefits. Photo by Siri Stafford/Getty Images.
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.
Marcia Holiday -- Seattle, Wash.: My husband is now 66 but retired last year and started receiving [Social Security] early (we were both born in 1946). I am planning to work to the end of the year by which time I will be 67. I make a lot more than he ever did: his Social Security payment is about $800, mine will be about $1800. Would it make sense for him to stop receiving his and apply for spousal excess until he is 70 when I retire and start receiving my Social Security?
Larry Kotlikoff: No. What would make sense is for your husband, if he started to collect his retirement benefit less than one year ago, to repay all the benefits he received. This will clean your slate, i.e., it will allow you two to start from scratch in terms of getting the most from Social Security.
This involves four steps. First, you file for your retirement benefit as soon as you reach full retirement age. Second, at that point, your husband files just for a spousal benefit based on your record. He'll receive the full spousal benefit equal to half of your full retirement benefit because, with his slate clean, he will be viewed by Social Security as never having filed for his own retirement benefit. When your husband reaches age 70 he applies for his retirement benefit. And when you reach age 70 you reactivate your retirement benefit.
If it's been more than a year since your husband filed for his retirement benefit, it may make sense for him to suspend his retirement benefit after you file and suspend yours. In this case, he'll receive an excess spousal benefit equal to half of your full retirement benefit less his full retirement benefit. He can receive six months retroactively on a new claim for spousal benefits. But it could be that the excess spousal benefit is negative, i.e., that his full retirement benefit exceeds half of your full retirement benefit. In this case, his excess spousal benefit would be reset to zero. But if it's not, you, under this scenario, would activate your retirement benefit, not now as you suggest, but at age 70.
If the excess spousal benefit your husband would receive is small or zero, it's likely that the right strategy in this situation is for A., your husband to suspend his retirement benefit and start it up again at 70, B., you file immediately (as in yesterday) just for your spousal benefit as soon as you reach full retirement age, and C., you file for your retirement benefit at 70.
Becky Hrdy -- Sherman, Conn.: My then-boyfriend and I were together from 1996. In 2000 he was diagnosed with inoperable lung cancer. I sold my apartment and moved in with him at the end of 2000. Around his chemotherapy schedule, we traveled to many places and finally got married in Jamaica in December 2001. He died in April 2002. We were married for four-and-a-half months. As [his] widow I did receive the $250 Social Security death benefit. When I turned 60 I inquired about the widow's survivor benefit and was told we needed to be married for nine months except for unexpected death events. Do I qualify and why not? How can I convince the [Social Security Administration] that I am not a gold digger?
Larry Kotlikoff: I'm sorry, but I don't see any way around Social Security's nine-month rule unless you can show that his death was not related to his cancer -- show, that is, that the death was unexpected.
Susan -- Manchester, N.H.: I started collecting Social Security in December, not knowing that if I had waited until June, I would have been able to collect on my ex-husband's Social Security. Since I already filed my claim and have begun benefits, can it be changed to collect on my ex-husband?
Larry Kotlikoff: You can withdraw your benefit if you do so within a year of starting to collect your retirement benefit. You would then repay what you have received, including any Medicare Part B premiums that were paid out of your Social Security benefit (the check you receive is net of the premium). Once you've done this, you can apply just for a spousal benefit, starting at or after your full retirement age, based on your ex's work history. This will be a full spousal benefit and will equal half of your ex's full retirement benefit.
This will be true if - and only if: A.You were married 10 or more years, and B. You have been divorced for two or more years or your ex started receiving his retirement benefit.
Sarah -- Flint, Tex.: Should I live off of money from my IRA, since I cannot find employment, am single, divorced over 10 years, and can draw about $900 per month next year, 2014, on ex-spousal benefits when I turn 66?
Larry Kotlikoff: I would say yes. But at 66, consider taking just your full spousal benefit (equal to half of your ex's full retirement benefit) and then waiting until 70 to collect your own retirement benefit, when it will be at its highest possible value thanks to the Delayed Retirement Credit.
Margaret Human - New Paltz, N.Y.: What is wrong with the idea of "saving" Social Security by raising the limit on the wages on which it is collected? Why do I never hear that discussed? (Maybe this is a political, rather than an economics question.)
Larry: This question has come up repeatedly in recent weeks and I've tried repeatedly to answer it. See my response to George Herzog at the bottom of Feb. 18's post and my answer to Lisa Elmont at the top of Feb. 25's "Ask Larry".
To summarize my position, eliminating the ceiling completely, starting immediately, will only generate about 60 percent of the revenues to continue paying benefits through time, given the $21 trillion funding shortfall the 2012 Social Security's Trustees Report identifies in its Table IVB6. To the founder and proprietor of this page, PBS NewsHour economics correspondent Paul Solman, 60 percent would be a major fix. Add means testing, he says, and you've closed the gap. What do I say? Closing a $21 trillion dollar gap by 60 percent would still leave us more than $8 trillion in the hole. And we already have what amounts to substantial means testing via the taxation of Social Security benefits under the federal income tax.
C Young -- Reading, Penn.: Thank you for your help with retirement planning. I will be 62 in July, 2013; my husband will be 64 in July, 2013. My worker's benefit at full retirement age (FRA) would be $848; my husband's worker's benefit at FRA would be $2402. If I take my reduced worker's benefit at 62, will my spouse's benefit be reduced by 30 percent because I took my own benefit early?
Would I receive a greater benefit by not filing for my benefit and just filing for a spousal benefit at 66?
If so, then would it be true that continuing to contribute to my Social Security for another four years would add not a penny to my best benefit? (I am an adjunct instructor without contract or benefits.) Thank you so much for your advice.
Larry Kotlikoff: Hi. If you take your retirement benefit at 62, it will be reduced 25 percent, not 30 percent. You'll be able to take a reduced excess spousal benefit at that age, but only if your husband files for his own retirement benefit, although he can suspend its collection after reaching full retirement age. Your excess spousal benefit is calculated as your half your husband's full retirement benefit less your entire full retirement benefit. If this amount is negative, which it may well be, your excess spousal benefit will be set to zero.
Your best option is likely to be either A, B, C, listed below. Which is best depends on your precise earnings records. Software can sort that out.
A. You wait until full retirement age to collect your full spousal benefit, equal to half of your husband's full retirement benefit; he files for his retirement benefit when you reach full retirement age, but suspends its collection. This lets you collect your spousal benefit; you collect your retirement benefit starting at 70; he restarts his retirement benefit at 70.
B. You wait until your husband reaches full retirement age at 66; you apply for your retirement benefit. Your husband files just for his spousal benefit based on your earnings history. When you reach full retirement, you suspend your own retirement benefit and file for your excess spousal benefit. For his part, your husband, when you reach full retirement age, files for his retirement benefit, but suspends its collection. This lets you collect the excess spousal benefit based on his work history. When both of you reach 70, you both restart your retirement benefits.
C. You start collecting your retirement benefit when your husband reaches full retirement age, permitting him to file just for a spousal benefit based on your work record. When your husband reaches 70, he starts collecting his* retirement benefit, when it will be at it largest value thanks to the Delayed Retirement Credit; when your husband reaches 70, you begin collecting your excess spousal benefit.
By the way, in case it isn't obvious, you -- and everyone else out there -- should not wait one day past your 70th birthday to start actually taking your Social Security. There is no additional benefit to waiting a moment beyond three score year and ten.