How to Avoid Making Social Security Mistakes
One of the nation's top retirement experts offers advice on when to claim Social Security benefits
Laurence J. Kotlikoff is one of the nation's leading experts on fiscal policy, national saving, and personal finance. He is Professor of Economics at Boston University, a columnist for Bloomberg, and co-author of The Clash of Generations: Saving Ourselves, Our Kids, and Our Economy.
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Tom: My wife and I will be 62 in January; I have the higher lifetime earnings. We have been advised to do the following to maximize our Social Security benefit: I should file for early retirement benefits at age 62, suspend them and have my wife begin collecting her spousal benefit at age 62. Then, at age 70, I should begin collecting my enhanced benefit and my wife should switch from a spousal benefit to her enhanced benefit. Does this strategy make sense?
Laurence Kotlikoff: No, it's very bad advice. First of all, you can't file for benefits and immediately suspend them (the file-and-suspend technique) until you reach full retirement age. Second, your wife can only take a spousal benefit at age 62 if you are taking a retirement benefit. In that case, you would receive a reduced retirement benefit for the rest of your life. Moreover, if she is able to take spousal benefits early because of your early retirement, the Social Security Adminstration will consider her to be applying for retirement benefits early as well. So you'll both be stuck with permanently reduced retirement benefits — precisely the opposite of what you seek.
Theresa: I am almost 62 and my spouse is 63. We were both planning to wait until full retirement age (66) or maybe until 70 before starting to collect our Social Security benefits. However, we are concerned that there may be legislative changes in the eligibility rules in the next two years that could affect our benefits before we file three to eight years from now. We are now both thinking about entering the Social Security system using a file-and-suspend application — filing for benefits and immediately suspending them. Our thought is that we will we then be "grandfathered" in the current Social Security system eligibility rules. Is this a feasible strategy?
Laurence Kotlikoff: I don't think you should worry about Social Security changing the rules on people your age. That's almost unthinkable. My guess is your best strategy is to wait until full retirement age and take spousal benefits then, while your husband files and suspends. Then both of you take your retirement benefits at 70. But if you or your husband had a very low earnings history, it might behoove that person to take retirement benefits starting now and a spousal benefit starting at full retirement age.
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Computer Stuff: My wife is a retired teacher drawing Massachusetts Teachers' Retirement System checks. She therefore has not had Social Security withheld during her career. I have been drawing a normal Social Security benefit for myself for five years. Can she receive a spousal benefit through me?
Laurence Kotlikoff: Yes, but the Government Pension Offset provision may reduce her spousal benefit to zero.
Michael Carrillo: I am on Social Security disability as a single person. What happens when I reach retirement age? Does my benefit roll over?
Laurence Kotlikoff: Yes, it rolls over.
Yogadog: I started my Social Security payments at age 69. My wife is now 59. Our plan was for her to take spousal benefits at age 62 and delay her own Social Security benefits until she reaches 66 1/2. Is this a good strategy? I do not pay Medicare Part B because my wife has good health insurance. She plans on retiring at age 63 or so.
Laurence Kotlikoff: This isn't a feasible strategy. If she takes her spousal benefit at 62, she'll be deemed to be taking her retirement benefit at that age as well. The best strategy is probably for her to wait until full retirement age to take her spousal benefit and then take her retirement benefit at 70.
meinc2: I applied for Social Security when I turned 62, just to get into the system. I knew I'd be working and not be eligible for benefits for several years to come. Was that a good decision or a bad one?
Laurence Kotlikoff: Generally it's a bad decision to take benefits early unless you are a low-earning spouse. But if you lost lots of benefits as a result of the Social Security earnings test, it's a good one, because Social Security will make an adjustment when you hit full retirement age based on the number of months of lost benefits. If you've lost all your benefits because of the earnings test and are now at Social Security's full retirement age, you can now suspend your benefit until 70 and end up with the maximum benefit possible.
If you have a spouse, the answer changes. But the general answer is you made a decision to "get into the system" rather than to get the most from the system — and that was bad decision-making.
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Jo: Six months before my 70th birthday, I began my application for Social Security benefits with a telephone interview. Before gathering my information, the interviewer asked me why I had waited so long to apply. I told him that I was waiting until 70 in order to receive the highest possible monthly rate. He said that I could have been receiving spousal benefits for almost four years before this. I told him that I had not been informed that I was eligible for these benefits. "We dropped the ball," he said. "You should have received a letter." I was, of course, very upset at this news. He then told me that he would be able to grant me benefits for the previous six months once my application was complete. Is there anything I can do to recoup the approximately $30,000 I lost because I did not know about this benefit?
Laurence Kotlikoff: I feel very badly about this. This system seems almost designed to get people to make the wrong decisions. I doubt you'd have any standing in court to sue Social Security on this, but it might be worth: a) calling the Office of the Actuary in Baltimore; and b) discussing this with an attorney. This is the first I've heard that they actually send out a letter about getting spousal benefits. If the agent checked and can verify that no letter was sent to you when it was supposed to be sent, that might permit Social Security to make up the lost benefits. Keep me posted.
Paul Solman is a member of the Twitterati and can be followed at Twitter@paulsolman. His daily blog can be followed, well, daily at Making Sen$e by linking here or just Googling the words "Making Sense."
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