Today’s column addresses some ramifications of filing early, the ability to restrict an application before full retirement age (FRA), reductions in benefits due to foreign pensions, voluntarily and involuntarily suspending benefits and the application of delayed retirement credits. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, a company that markets Maximize My Social Security and MaxiFi Planner. Both tools maximize lifetime Social Security benefits. MaxiFi also finds retirement account withdrawal strategies and other ways to lower your lifetime taxes and raise your lifetime spending. Most important, it suggests how much to spend and save each year to enjoy a stable living standard through time.
See more Ask Larry answers here.
Can My Wife File At 62 And Later Get Full Social Security Spousal Benefits?
Hi Larry, My wife will turn 62 in a few months. She spent most of her adult years raising a family but did work sufficiently to be eligible for a Social Security retirement benefit. I am planning on waiting until 70 to begin to receive my Social Security retirement benefit and she’ll then file for her spousal benefit based on my record. Do I have this wrong or am I correct that she can apply for her Social Security retirement benefit based on her own record at 62, receive it until I turn 70 and then receive her full spousal benefit, which would be 50% of my retirement benefit amount at that time? We are the same age. Thanks, Hal
Hi Hal, Your wife cannot start drawing her own retirement benefits at 62 and later switch to a spousal benefit equal to 50% of your benefit amount when you start drawing your benefits. Once a person files for their own retirement benefits, that becomes their primary benefit for life. Any other type of benefit (e.g. spousal, widow) for which they subsequently qualify could only be paid as a partial secondary benefit. So if your wife files for reduced benefits on her own record at 62, she will keep the resulting reduction for age for as long as both of you are living. Also note that even if it was unreduced, her spousal benefit would be 50% of your Primary Insurance Amount (PIA), which is equal to your full retirement age (FRA) retirement benefit amount, not 50% of your increased benefit at 70.
For example, say Kate files for her retirement benefits at 62. Kate’s PIA would be $600, but her reduced age 62 rate is $440. Eight years later when Kate’s husband turns age 70, he applies for his retirement benefits. Kate’s husband’s PIA is $2,000, and Kate’s spousal benefit would be calculated by subtracting her PIA from 50% of her husband’s PIA, which would amount to $400 (i.e. $2,000 / 2 – $600) in this example. Kate would then be paid a combined benefit rate equal to the sum of her reduced retirement rate and her spousal rate, or $840 (i.e. $440 + $400) in this example.
Before filing, you and your wife may want to use one of my company’s two tools — Maximize My Social Security or MaxiFi Planner — to help maximize your lifetime Social Security benefits. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry
Can I Make A Restricted Application For Spousal Benefits Now?
Hi Larry, My spouse is 65 years old and has recently filed for Social Security retirement benefits. I am also 65 years old but I am planning to continue working. I am planning to file for Social Security benefits at 70 so that I can maximize my benefits. Can I file for spousal benefits now? Thanks, Carla
Hi Carla, You can’t file for spousal benefits prior to full retirement age (FRA) without also being deemed to file for retirement benefits on your own record, but assuming that you were born prior to 1/2/1954, you could file a restricted application just for spousal benefits only at your FRA and still allow your own retirement benefits to grow until 70. This may well be your optimal strategy, but you may want to consider using maximization software to be sure. Best, Larry
What Can I Do About The Reduction In My Benefit Rate?
Hi Larry, When I first applied for Social Security I completed the application online but had to go into the local office because I mentioned my UK pension. I had only just qualified for the UK pension with a total of 10 years working in the UK and Canada. The remainder of my work life was in the US. The local office told me they had to reduce my Social Security payments because of my UK pension. I have never worked for a government agency, so I don’t understand the reason for lowering my Social Security retirement benefits. What can I do, and if it is found to be wrong, can I get back payment? Thanks, Elaine
Hi Elaine, I can’t say for sure without more details, but the reduction you refer to is probably correct. The Windfall Elimination Provision (WEP) can result in the use of a less generous Social Security retirement benefit calculation formula for people who receive a pension based on their work that was exempt from Social Security taxes. So, it sounds like your UK/Canadian pension would probably cause you to receive a lower US Social Security benefit than you would otherwise receive if you weren’t receiving the non-covered pension. Though it’s probably unlikely that they’d apply, tere are exceptions to WEP, though, and if you meet any of those exceptions it’s possible that you could be exempt from the lower WEP rate. In that case, it would also be possible to have your benefit rate corrected retroactively and get back pay. Best, Larry
Can I Start Drawing Social Security At 62 Or 64 And Then Stop And Restart Them At 66 Or 67?
HI Larry, Would I be able to start my Social Security retirement benefits at 62 and at 64 and then later, after returning to work, stop them before picking them back up at 66 or 67? Thanks, Jeff
Hi Jeff, If you start drawing reduced benefits prior to your full retirement age (FRA), you can’t voluntarily suspend your benefits until you reach FRA. Your benefits could be involuntarily suspended, though, if you return to work prior to FRA and earn more than the Social Security earnings test exempt amount.
Basically, Social Security would need to withhold $1 of benefits for each $2 or $3 that you earn in excess of the exempt amount, which could cause your benefit payments to be suspended for part of a year or the entire year depending on how much you earn. And if any of your benefits are withheld prior to FRA, your benefit rate could be recalculated effective at FRA to remove some or all of the reduction that was applied to your benefit rate for starting to draw early. Best, Larry
Will I Receive My Four Delayed Retirement Credits If I File For My Benefits Effective With January 2019?
Hi Larry, I am currently collecting Social Security divorced spousal benefits since September 2018. I was born in 1952. If I decide to start my own Social Security retirement benefits in January 2020 as the start date, will my benefit be what it would have been in my birth month of August will the delayed retirement credits from then to the end of the year be included in the January 2020 payment? It would be much better for me to have the delayed retirement credits included in my initial payments instead of waiting for a recalculate at some time in the future. Thanks, Kelly
Hi Kelly, Yes, if you file for Social Security retirement benefits between your full retirement age (FRA) and age 70 and your month of entitlement is January, your initial benefit rate would include all of the delayed retirement credits (DRC) to which you’re entitled.
I don’t know what your circumstances are, but assuming that your own retirement benefit rate is higher than your divorced spousal rate, you should think long and hard before deciding to switch to your retirement benefit based on your own record prior to 70. Your own retirement rate would continue to grow by 8% per year until you reach 70 as long as you don’t opt to start drawing your own benefits until then, so there’s a very good chance that waiting until 70 might be the best way to maximize your benefits if you are able to delay them. Best, Larry
To learn more about your Social Security options, visit Economic Security Planning, Inc.