May 29, 2019
If you are currently single but were previously married, then you are either widowed or divorced. Even though you are single now, you may be entitled to a benefit from Social Security other than your own. However, you must be vested to collect this benefit – how long you were married counts for eligibility.
Widows
If you are widowed but married for less than nine months, you are not eligible for the survivor benefit (See Part 3). However, the 9 month requirement is waived if:
- the death was accidental,
- the death occurred in the line of military duty, or
- you are currently caring for children from the marriage under age 16.
This benefit is up to the full amount that your spouse was or would be collecting. You can collect this benefit as early as age 60, although the payments are reduced.
Divorcees
If you are divorced but were married for fewer than ten years, then you qualify only for your own benefit but not for the spousal benefit. If you are vested (married 10+ years), then this benefit is up to half of your ex-spouses benefit at his/her Full Retirement Age.
You do not need to get permission to take a spousal benefit and in fact your ex-spouse is not informed when you apply. The remarriage of an ex-spouse does not affect your benefits.
If your ex-spouse has not applied for retirement benefits but can qualify for them, you can receive benefits on their record if you have been divorced for at least two years.
If you are a divorcee and your ex-spouse dies, then you become eligible for the survivor benefit whether you were collecting your own or the spousal benefit.
As described in Part 3 of this series there are more complicated strategies for filing if you qualify for a spousal benefit, but only if you were born before January 2, 1954. See Part 3 for the detailed description.
Filing
If you have had multiple marriages that you are vested in, you may choose the benefit that is the highest for you. Multiple people can collect from you as long as they each qualify for the benefit.
To qualify for these benefits, you must produce not only your own birth records but also your marriage certificate and either a divorce decree or a death certificate.
Social Security strategies are especially complicated if you were previously married. You should consult your own tax, legal, accounting and financial advisors before engaging in any transaction or taking any actions with regard to the content discussed above. The author does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal or accounting advice.
May 22, 2019
Married couples have two extra benefits as compared to individuals. Those benefits can make all the difference for maximizing your lifetime benefit from Social Security.
Spousal benefit
The first is the spousal benefit, which permits you to collect up to half of the benefit of your spouse at his/her Full Retirement Age (see Part 1) if you have been married for a year or more. Your spouse must have started collecting his/her own benefit before you can start to collect the spousal benefit.
When you file, you choose between your own individual benefit and your spousal benefit – you cannot collect both at the same time. In fact, when you file for your benefits, Social Security will ask you if you are currently married. If you are, they will calculate which is higher and require you to take the higher value.
The spousal benefit is particularly important if your earnings are substantially less than that of your spouse. Then it would work out well to collect the spousal benefit instead of your own.
Survivor benefit
The other extra benefit from being married is the survivor benefit. When one of you dies, the survivor collects the higher of your two benefits. To collect this benefit, you must have been married for 9 months or more or have a child 16 or younger living with you.
So the higher benefits ends up being paid out over your joint lifetime, which is longer than either of your individual lifetimes. Your joint lifetime is the number of years when at least one of you in a couple is still alive.
Strategies for filing that will achieve maximum lifetime benefits
Just like for individuals, it is important for the higher wage earner to wait as long as possible, up to age 70, to file for benefits. But it is doubly important for married couples, because that higher benefit is paid out over both lifetimes.
What about the lower wage earner? It is less critical to wait until age 70 unless you are convinced that both of your lifespans will be substantially longer than average. After all, that lower benefit will be paid only until either of you dies, at which point only the higher survivor benefit will be paid.
The best strategy for the lower wage earner then is to file for benefits when you stop working or at your Full Retirement Age (FRA), whichever comes first. When the higher wage earner files for a benefit, you are now eligible for the spousal benefit. If your own benefit is greater than the spousal benefit, then keep it. If it smaller, switch to the spousal benefit.
Remember that at your FRA you can collect your full Social Security payments no matter how much you are earning. Starting early for the lower wage earner has the psychological benefit of not having to dip as much into your investments at an earlier age.
More complicated strategies for filing
There used to be a number of strategies for increasing lifetime benefits that included the spousal benefit. The Bipartisan Budget Act of 2015 stopped most of them. Only one is left. It is complicated and works only if the higher wage earner was born before January 2, 1954. If you qualify, it can provide an additional lifetime benefit of hundreds or thousands of dollars.
The first step is for the lower wage earner to file for his/her individual benefit. The second step happens after the higher wage earner has turned 66 (which is the FRA) and is therefore eligible for either his/her own or the spousal benefit. Then the higher wage earner does not file for his/her benefit but instead restricts (limits) his/her benefit to the spousal benefit. At this point both are collecting while the higher wage earner’s individual benefit is growing because he/she has not filed for it. Step three happens when the higher wage earner turns 70. Then he/she switches from the spousal to his/her own benefit. The lower wage earner either keeps his/her own benefit or switches to the spousal benefit, whichever generates more monthly income.
You can see that Social Security strategies are more complicated if you are married. You should consult your own tax, legal, accounting and financial advisors before engaging in any transaction or taking any actions with regard to the content discussed above. The author does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal or accounting advice.
Next blog: Social Security strategies for previously married couples.
May 15, 2019
One of the major objectives for most retirees is to maximize their Social Security benefits over their lifetime. The strategies for doing this differ for singles, compared to married partners.
Note: for Social Security purposes, single individuals include those who never married, divorcees who were married for less than ten years and widows / widowers who were married for less than nine months! Those divorcees and widows are not vested in benefits from their former partners.
Wait to collect
The longer you live, the more Social Security benefits you collect. As mentioned in Part 1 of this series on Social Security, there is a tradeoff. If you wait to start collecting, your monthly benefit increases. But you have lost months or years of payments. The break-even point is at about age 79, when your benefits so far are the same whether you have started collecting early or late. If you live longer than age 79, you will collect more by waiting to start collecting.
So how long will you live? Currently the life expectancy for a 65-year-old man is about 19 years (until age 84) and for a woman is about 22 years (until age 87.) This means at the life expectancy age, half of the formerly 65-year-olds will still be around to collect and half will not.
So unless you have very compelling evidence that you will not be around to be paid past age 79, i.e. your health is much worse than your contemporaries, you should wait as long as possible to file for your benefits. Social Security payments reach their maximum amount, at age 70, so there is no reason to wait beyond that age.
Furthermore, if you happen to live past your life expectancy age, you may need a higher Social Security payment than ever. What if you have used up much of your investments? Then your investment income would be lower. You might use up your investment altogether and become totally dependent on your Social Security for income. Your financial professional and / or accountant should be able to work with you to plan this out if you need advice specifically for your own situation.
Verify that the numbers are right
What else can you do to maximize Social Security? You should review your work history either on the form Social Security has mailed you or at the Social Security website you have set up for yourself at www.ssa.gov Remember that the amount of your Social Security payments come from your best 35 years of earnings, even if some of the years are zeroes. Social Security gets its numbers from the IRS. Occasionally, there are mistakes, and you can correct them.
Manage income in the gap between work and Social Security
If you retire before age 70 and want to wait to collect Social Security, where will your money come from to pay the bills? The two most common sources are investments, both income and principal, and some paid work, perhaps from a part-time job. Or perhaps you can extend your current job before retiring.
Does it make sense to cash in some of your investments so that your Social Security benefit can grow? Generally, yes. Each year after your Full Retirement Age (see Part 1) your benefit grows by 8% each year. That growth rate, which is guaranteed and tax-free, is much less risky than expecting your investments to exceed that grow rate each year.
Next blog: Social Security strategies for married couples.
May 9, 2019
In the old days, people used to retire and then, if age 62 or older, start to collect Social Security. We now know that this could be a terrible approach, costing literally hundreds of thousands of dollars in lost benefits over a lifetime, depending on how long you live.
The benefit
There is no pile of money waiting for you when you retire. Instead, when you are working, both you and your employer generally contribute each year to Social Security. Those contributions support current retirees. When it is time for you to collect, working people and their employers then will pay you from incoming contributions and from the US Treasury. The amount will be based on:
- your average inflation-adjusted salary over the best 35 years (not necessarily consecutive) of your contributions. That average is recalculated each year to reflect new earnings, even if you are already collecting.
- the age you start to collect. If you start when you are younger, perhaps at age 62, you collect a smaller amount but for more months. If you start when you are older, you collect more each month but for fewer months. Can you ever catch up for lost benefits if you start later? Yes, at approximately age 79.
- the inflation rate. Once you are collecting, the benefit may increase depending on the rate of inflation. It could stay the same if there is no inflation, but it will never decrease.
Social Security periodically will send you a statement that includes your monthly benefit at three ages: 62 (the youngest age at which you can collect) or now if you are currently older, 70 (the oldest age it makes sense to begin collecting) and at your Full Retirement Age (FRA). If you were born in 1954 or earlier, then your FRA is age 66. If you were born in 1960 or later, then your FRA is age 67. If you were born in between, your FRA is in between.
You can set up your own Social Security account to learn your own numbers at www.ssa.gov
The Treasury now has a three trillion dollar Trust Fund IOU to Social Security which was accumulated when the payments to Social Security exceeded the payments out. If and when the Trust Fund is exhausted, perhaps in 14 years, payments will drop 25% across the board – unless the government changes the rules. Congress has fixed many problems in the past.
Collection and work
There is no relationship between collecting Social Security and retirement. You can work and collect or not. You can be retired and collect or not. However, if you are not yet at your FRA and are working, your benefit will be reduced by $1 for every $2 you earn more than $17,640 in 2019. At or beyond your FRA, earned income does not reduce your benefit.
Taxation of Social Security benefits
Part of your Social Security benefit may be taxed. For purpose of taxation your “combined income” is your adjusted gross income plus non-taxable income plus half of your Social Security. If you are single and your combined income is less than $25,000, it is not taxable. If between $25,000 and $34,000, 50% of the benefit is taxed. If greater than $34,000, 85% of the benefit is taxed. If you are married and filing jointly, the corresponding thresholds are $32,000 and $44,000.
Filing for Social Security benefits
You can apply on-line, by telephone, or in person at a local Social Security office (by appointment is better.) You need to present proof of age (your Social Security card, passport, or birth certificate) and marriage related information if appropriate (marriage certificate, divorce decree, death certificate if widowed). It can take six weeks to process your application and start your benefits.
Next blogs
Social Security is complicated in part because it has different rules for those of different marital statuses. It has three categories – married, never been married, and divorcees / widows. The next three blogs, to be distributed weekly instead of biweekly, will discuss the principles and strategies for each of these categories.
The author does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal or accounting advice. You should consult your own tax, legal, accounting and financial advisors before engaging in any transaction or taking any actions with regard to the content discussed above.
