What to Do If Social Security Says You Can't File and Suspend
By Larry Kotlikoff
Larry Kotlikoff answers your Social Security questions. Photo by Flickr user 401(K) 2012.
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 Monday.
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. -Paul Solman
Steve Hirsh -- Ridgeland, Miss.: I'm 67 and have filed for my Social Security. My wife is 62. Her full Social Security retirement base amount is slightly more than half of mine (hers, $1250; mine, $2340). I have been told repeatedly by various Social Security reps that she cannot file for the spousal option because her base is equal to more than half of mine. We wanted to have her file for the spousal option at her full retirement age (66) and defer her own benefits until age 70 (which would provide an approximately 32 percent increase over her original base). Are there any options? Is the Social Security office correct that we can't do this because of the relative values of our full base amounts? Thanks for your time and advice.
Larry Kotlikoff: No, the Social Security office got this one wrong. Your wife can file JUST for spousal benefits starting at age 66 and receive $1170, then switch to her own retirement benefit at 70 and receive $1650. I suggest you refer them to this page on the official Social Security website. And for any of you out there who are unsure on this issue, read the page yourselves.
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John Pearce -- Mill Valley, Calif.: Are my Social Security benefit amounts tied to my lifetime income? I've had radically varying income, in many years zero, in some a great deal. How will this affect my benefits?
Larry Kotlikoff: Yes, Social Security first looks at your past "covered earnings" up through age 60 - earnings up to the ceiling ($113,700 this year) after which income is no longer subject to the payroll tax. Social Security then "indexes" these earnings upward to adjust for the economy's average wage growth, a way of accounting for inflation. Next, it adds all covered earnings after age 60, unadjusted. It then takes the highest 35 of all these yearly values to calculate your average indexed monthly earnings (AIME). Your AIME is the sum of these 35 highest values divided by 35 years to get an annual number, and then divided again by 12 months to get the per month total. The AIME is then plugged into a progressive benefit formula to calculate your full retirement benefit, called your primary insurance amount (PIA).
Re: your second question about "radically varying income": if you compare someone making $100,000 per year for 40 years, say, with someone making zero for 20 years and $200,000 for 20 years, the person making the steady $100,000 will fare better. The reason is that $200,000 is far above the covered earnings ceiling of $113,700. Since the person who works every year earning $100,000 has more of their earnings, on average, covered than someone who works every other year, the sporadic earner collects less in Social Security benefits.
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Raymond J Guerrero, Jr -- Austin, Tex.: The "windfall elimination provision" is an abominable piece of legislation! Is there any chance of its being done away with? Would those of us currently being victimized by this provision (myself included) be able to receive all of our Social Security benefits if this provision is done away with?
Larry Kotlikoff: Yes to your second question. No to your first: there's no chance, absent a wholesale change in the system.
AR -- Las Vegas, Nev.: We could use some help. My husband will be 68 in the fall and is not collecting Social Security, planning to work until 70. I will be 59 this spring. I have worked (and will be again) and qualify for Social Security. What would be the best scenario for us considering our age gap?
Larry Kotlikoff: Your best strategy will be to have your husband collect his retirement benefit starting at age 70. This will ensure you receive the highest possible survivor benefit should he die before you. You should probably take a spousal benefit when you reach full retirement age and also wait until 70 to collect your own maximum retirement benefit.
Marcy -- Northridge, Calif.: I am 56 and a widow. We were married for 17 years. I have one child who is getting a survivor benefit until the age of 18. I am planning to work until 67 and my salary has been more than my late husband's was in the last 5 years of his life (he was 53). Since my son is drawing a benefit, will I be entitled to my late husband's Social Security too and if yes, when should I start to draw his benefit and when should I start to draw mine? Thank you.
Larry Kotlikoff: From what you've described, your best strategy is likely to be: Wait until you reach full retirement age, which, assuming you were born in 1957, will be 66 and 6 months; start, at that point, to collect just your survivor benefit; then wait until 70 to collect your retirement benefit. Software available on the market can verify if this is indeed the best course of action.
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Tom O'Shaughnessy - Midland Park, N.J.: My wife took early retirement benefits at 62. She is now 66. I started taking benefits at full retirement age, 66. Can she suspend hers and get spousal benefits? Would they be reduced even though she is now 66?
Larry Kotlikoff: If you were collecting your retirement benefit when she started receiving her own retirement benefit, she would have been forced to take her excess spousal benefit. Her excess spousal benefit is 50 percent of your full retirement benefit less 100 percent of her full retirement benefit, if this difference is positive. If it's not, the excess spousal benefit will be set to zero. So your wife can suspend her benefit through age 70 and start it up then at a 32 percent higher level. But between now and then, she may get an excess spousal benefit of zero. If you are under age 70, you too can suspend your benefit and start it up again at 70.