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Social Security Survivor Benefit Coordination

coordinatingIf you’re a widow or widower and you are eligible for Social Security Survivor’s Benefits based on your late spouse’s record, you may have some timing decisions to make that could significantly affect your overall benefits. This is especially true if you are also eligible for Social Security benefits based on your own earnings record.

Timing the receipt of benefits is, as with most all Social Security benefits, the primary factor that you can control.  If you have worked over your lifetime and you have a  becomes even more important. The decision process is dependent upon the relative size of your own Social Security benefit as compared to the Survivor Benefit based on your late spouse’s record.

Own SS Benefit Greater than Survivor Benefit  If your own benefit will be greater than the Survivor Benefit, it could be beneficial to you in the long run to take the Survivor Benefit as early as possible (as early as age 60) even though it will be reduced.  You could then continue receiving this reduced benefit for several years to your FRA (or even to age 70) and then switch over to your own benefit, which will be higher and unreduced at that point.

Survivor Benefit Greater than Own Benefit  If the Survivor Benefit is the larger of the two, you could take your own benefit early (reduced, of course) and then switch over to the Survivor Benefit later, at FRA. It doesn’t pay to delay the Survivor Benefit to a date later than your Full Retirement Age – the Survivor Benefit will not increase after that age.

By using one of these methods you are able to receive *some* benefit earlier-on in your life, and then switch over to the higher benefit later.  Just keep in mind that earnings limits and other reductions will apply.  Also, these same options are available for ex-spouse widows and widowers as well, as long as you haven’t remarried prior to age 60.

Complications with Social Security Filing for Divorcees

divorceSocial Security filing decisions are tough enough – and so is being divorced. Add the two together and you have all sorts of complications. In this article we’ll review one type of complication with Social Security filing for divorcees that can work in your favor and one that can work against you.

Let’s start with the provision that may work against you – Deemed Filing.

Deemed Filing

When you file for benefits prior to Full Retirement Age (FRA, which is 66 for folks born between 1943 and 1954, ranging up to age 67 if born in 1960), a provision called “deemed filing” takes effect. Deemed filing means that you are “deemed” to have filed for all available benefits – generally meaning your own benefit and any spousal benefit that you are eligible for as of the date of filing.

The reason that deemed filing might work against you if you’re divorced is because of the nature of eligibility for spousal benefits for a divorcee: You are automatically eligible for spousal benefits based on your ex-spouse’s record when either the ex has reached age 62 and the divorce has been final for two years, or when the ex files for his or her own Social Security benefits, whichever occurs first.

For a currently-married individual, spousal benefits are not available until the spouse has applied for his or her own benefit. Because of this, the married individual has a bit more control over his or her filing for spousal benefits, since the couple can discuss and time the two filings in order to separate retirement benefits from spousal benefits. As a divorcee you have much less control over this decision.

For example, Lou divorced her husband Ed five years ago after a 10+ year marriage. Lou is going to reach age 62 this year, and she would like to file for her own benefit now, and then delay filing for the spousal benefit based on Ed’s record until she reaches FRA, age 66. The key here is Ed’s age. If Ed is already age 62 or older, Lou does not have the option of separating her retirement benefit from the spousal benefit.

On the other hand, if Ed reaches age 62 at least in the month after Lou reaches age 62, Lou could file for her own retirement benefit any time after she reaches age 62 but before Ed reaches age 62, effectively separating her own retirement benefit from the spousal benefit based on Ed’s record.

Another way that this separation could occur is if the divorce had not occurred more than 2 years before Lou’s reaching age 62, and Ed has not filed for his own benefit prior to Lou’s filing.

So in our example, if the divorce was only finalized earlier this year and Ed has not filed for his own benefit, Lou could file for her own retirement benefit separately from the spousal benefit any time before the two-year period after the divorce has elapsed – as long as Ed doesn’t file for his own benefit before that period has elapsed.

This is also dependant upon the fact that Lou remains unmarried. So another way to separate these benefits would be for Lou to re-marry, and then file for her own benefit at any time. The remarriage nullifies Lou’s eligibility for spousal benefits based on Ed’s record. The eligibility for spousal benefits based on Ed’s record is restored if Lou’s current marriage ends (either by a subsequent divorce or death of the current spouse) – but since she wasn’t eligible when she filed for her own benefit, deemed filing did not apply and she can control when she files for the spousal benefit.

Restricted Application

On the other hand, as a divorcee you may have special treatment available to you in filing a restricted application for spousal benefits.

The restricted application is an option where an individual can, at Full Retirement Age or later, file strictly for spousal benefits only while delaying filing on his or her own retirement benefit until later when delayed retirement credits have accrued. He or she must not have filed for any Social Security retirement benefits previously.

In order for an individual to be eligible to file a restricted application, of course that person must be eligible for a spousal benefit. As a divorcee, the same rules that restricted you in the deemed filing section above have a tendency to liberate you at this stage. Since eligibility for spousal benefits is based only on the age of your ex-spouse and the time elapsed since the divorce was finalized, a unique situation is available. Both spouses could be eligible to file a restricted application.

On the other hand, for a married couple only one spouse can be eligible for a restricted application – because eligibility for spousal benefits for married persons depends on the other spouse filing for his or her own benefit. In doing so, of course this person could not file a restricted application.

Back to our example couple, Lou & Ed: Lou chose not to file for her own benefit at 62, and Ed delayed as well. When Lou reaches FRA (as long as she’s unmarried), she can file a restricted application for spousal benefits based on Ed’s record. This is because she is at or older than FRA and she is eligible for spousal benefits due to the fact that her divorce has been finalized for more than 2 years and Ed is at least age 62. Ed’s filing status doesn’t matter to her eligibility.

Maximum WEP Impact

water

Photo courtesy of Matthew Kosloski via Unsplash.com.

Rounding out our series of articles about the Windfall Elimination Provision, or WEP, I thought we should talk a bit about the maximum impact that WEP can have on you.

In other articles we’ve discussed this in part, but it hasn’t necessarily been fleshed out completely.  As you may know, the maximum WEP reduction is equal to the lesser of 50% of the first “bend point” for each year or 50% of the amount of the pension from income that was not subject to Social Security taxation. In 2015 this is $413 per month at most.

What’s important to know is that this reduction is against your Primary Insurance Amount (PIA), not necessarily against your benefit amount. Depending upon when you file relative to your Full Retirement Age, the WEP impact to your benefit could be more or less than that amount.

Wait – what?

As you may recall, the Primary Insurance Amount (PIA) is only equal to your benefit if you file at exactly your Full Retirement Age (FRA). If you file at some age (even a month) before or after your FRA, the PIA is only a foundation used to calculate your benefit. If you file before FRA, your benefit will be something less than the PIA; after, your benefit will be something more than your PIA.

So, as a result, if your PIA is reduced by the maximum WEP impact ($413 for 2015), the actual benefit reduction will be more or less than that amount unless you file at exactly your FRA.

For example, Sue has an unreduced, pre-WEP PIA (Primary Insurance Amount) of $1,500 and she is subject to the maximum WEP impact of $413. Sue is deciding when to file for her Social Security benefit – she will be 62 in 3 months, so she could file early, or she could wait until age 70 to file. Her FRA is 66 years of age.

If Sue decides to file at age 62, her benefit would be calculated as 75% of her PIA. Since her PIA is $1,500 and the maximum WEP impact is $413, her WEP impacted PIA will be $1,087 ($1,500 minus $413). Her benefit at age 62 will be $815.30 – for a dollar-reduction (maximum WEP impact) of $309.70 because if WEP had not impacted her PIA her benefit would have been $1,125.

On the other hand, if Sue decides to file age her own age 70, her benefit is calculated as 132% of her PIA – reflecting the maximum Delayed Retirement Credits. Since her maximum WEP impact-reduced PIA is $1,087 (as calculated above), her benefit at age 70 will be $1,434.80. In this case, her maximum WEP impact is $545.20. This is because if the Sue’s PIA had not been subject to the maximum WEP impact, it would have been $1,980 at her age 70.

So, the real maximum WEP impact to your benefit can be anywhere from $309.70 to $545.20 for 2015.

File & Suspend vs. Restricted Application

file & suspendThese provisions in Social Security filing are, without a doubt, the two that cause the most confusion. Being very complicated provisions and also provisions that can be very helpful to folks wishing to maximize benefits, file & suspend and restricted application are often mis-used or completely misunderstood. So at the suggestion of a reader, seeing a comment response I’d given to another reader, I will provide some additional background on just what is the difference between these two, as well as when one is used versus the other.

First of all – although it is technically possible for one person to both file & suspend and file a restricted application, typically this results in either no benefit at all or very little benefit. You should not consider both of these to be done by one person unless there are some extenuating circumstances that require it (I can’t for the life of me think of any at the moment but there’s bound to be at least one).

Here’s why:

When you file & suspend, you have established a filing date. If you have established a filing date, the only spousal benefit that you are eligible to receive is the excess – which is the spousal benefit minus your own benefit. If this turns out to be negative, you would receive no spousal benefit at all. If your intent is to delay your own benefit as long as possible you would be unnecessarily reducing the spousal benefit (or eliminating it altogether) by doing a file & suspend.

On the other hand, you can only file a restricted application if you have not established a filing date, and you can only file this at or after your FRA. By filing a restricted application, you are eligible for the full amount of the spousal benefit (50% of your spouse’s FRA-age benefit) with no reduction. Your spouse must have established a filing date for her retirement benefit to enable you to file the restricted application.

The restricted application is called so because you are applying NOT for all available benefits, but you are restricting your application to spousal benefits only. If your application is not restricted, SSA considers it an application for all available benefits as of your filing date. You would file a restricted application if you wanted to delay your retirement benefit but also receive a spousal benefit in the meantime (until you file for your own retirement benefit).

To help with understanding, have a look at this prior article File & Suspend and Restricted Application are NOT Equal. There are a few examples toward the end of the article which will likely help illustrate the differences between the two provisions.

Hope this helps to clear things up about file & suspend and restricted application – if not, let me know in the comments below!

When Does WEP NOT Impact My Social Security?

bamboo

Photo courtesy of Ståle Grut via Unsplash.com.

Recently we covered the Windfall Elimination Provision a bit more completely, including how to eliminate WEP and how WEP can impact your dependents. This prompted quite a few folks to write to me about their own situations, wondering if WEP would impact them.  So today we’ll cover those cases where you might be wondering about this, when WEP does NOT impact your Social Security.

First of all, if you have worked all your life in a job where Social Security tax was withheld, WEP does not impact your Social Security at all. This is true even if you worked in a government job – as long as your wages (earnings) were subject to Social Security tax withholding, WEP will not impact you.

As well, if you have worked and received substantial earnings from Social Security covered jobs for 30 or more years during your career, and you also have a pension coming from a non-SS-covered job, then WEP will not impact your Social Security benefit.

In addition, if you worked in a job where the earnings were not subject to Social Security tax withholding, but you didn’t work there long enough to generate a pension from those earnings, then WEP will also not impact your Social Security. This is to say, if you do not have a pension (of any type, lump sum, annuity, or other) coming from the non-Social Security-covered job, WEP does not impact your Social Security.

Also, if you are receiving a pension based on someone else’s work – your spouse for instance – that was not subject to Social Security taxation, this pension will not cause WEP impact to your own Social Security, or to a spouse benefit from Social Security. WEP is based upon a pension being received for YOUR work, and it would impact YOUR retirement Social Security benefit. In this case, the pension is not based on your work, it is based on your spouse’s work.

Another way that you could be receiving a pension from a non-Social Security-covered job where WEP would not impact you is if the pension is from a foreign (non-US) government that has a totalization agreement with the United States Social Security system. It’s highly unlikely that this situation would come about because the totalization agreement typically means that your credit in one government’s system is applied to the other government’s system and you only receive one of the pensions. I only mention this situation to complete the picture of possibilities.

Lastly, if you have received a lump sum payment of a pension from a job where Social Security taxes were not withheld, and you have lived past the actuarially-defined timespan that the pension was determined to last, then WEP will no longer impact your Social Security benefit.

I can’t say for sure that this is an exhaustive list – this is just the list that comes to mind at the moment. If you have other situations where WEP is not impacting you, please let me know in the comments section below.

How Does WEP Affect My Dependents?

Photo courtesy of Samuel Zeller via Unsplash.com.

Photo courtesy of Samuel Zeller via Unsplash.com.

We’ve reviewed how WEP impacts your own benefits in prior articles. Briefly, when you’re receiving a pension based on work that was not covered by Social Security, your own Primary Insurance Amount will be reduced by as much as $413 per month (2015 figures) or 50% of the pension, whichever is less.

But can this reduction to benefits affect my dependents’ benefits as well?

Since the nature of the WEP calculation is to reduce your Primary Insurance Amount (PIA), that means any benefit that is based on your PIA will also be reduced.

So, if your spouse is planning to receive spousal benefits based on your earnings record and your PIA is reduced due to WEP, the spousal benefit available to your spouse will also be reduced.

For example, Jennifer, age 66 was a teacher for 25 years, and her employment was not covered by Social Security taxes. In addition to her teaching job, she also worked part-time and during the summer breaks in a job that was covered by Social Security. She earned 20 years of coverage as substantial earnings, not enough to reduce WEP, but enough to generate a Social Security retirement benefit.

Jennifer’s PIA (before WEP) is $1,400 per month, and since her pension from the teaching job is $1,500, the total WEP reduction factor for her PIA is $413. Her WEP-reduced PIA is $987.

Jennifer’s husband Scott is also 66. When Jennifer files for her own retirement benefit, Scott intends to file a restricted application for Spousal Benefits. Since Scott has not filed for benefits previously, he will be eligible for a Spousal Benefit equal to 50% of Jennifer’s PIA – $493.50 (50% of $987).

See How to Eliminate WEP for details on what happens to Scott’s benefit if Jennifer dies while he’s collecting Spousal Benefits (spoiler alert: it’s an increase).

How to Eliminate WEP

Photo courtesy of ahmadreza sajadi via Unsplash.com.

Photo courtesy of ahmadreza sajadi via Unsplash.com.

If you are receiving a pension from a non-Social Security covered job and you’re also entitled to receive Social Security benefits, the Windfall Elimination Provision (WEP) may reduce your Social Security benefit. There are ways that this WEP reduction can be eliminated.

How to Eliminate WEP

As discussed in other articles, it is possible to reduce the impact of WEP by working in a Social Security-covered job and earning “substantial earnings” ($22,050 in 2015) for 21 or more years. For the first 20 years, there is no reduction to the WEP impact. For each year of substantial earnings greater than 20, the impact of WEP is reduced by 10%. When a total of 30 years of substantial earnings have been recorded on your earnings record, WEP is eliminated completely.

Another way to eliminate WEP is when the primary numberholder (the individual subject to WEP) dies. This is because WEP only impacts your PIA when you are receiving a pension based on non-covered employment. If the primary numberholder dies, she is no longer receiving the pension – therefore, WEP no longer applies. If the surviving spouse chooses to continue (or begin) receiving a Spousal Benefit, the PIA against which the spousal benefit is calculated is restored to non-WEP impact.

In addition – when a pension from a non-covered job is received in a lump sum, SSA calculates a number of years over which the lump sum would have been spread had it been received as an annuity. The recipient can eliminate WEP impact if he or she out-lives that time span determined for the deemed annuitization of the lump sum. After that time has elapsed, your PIA will be restored to the pre-WEP level.

When is Your Social Security Birthday?

birthday cake
Image by freakgirl via Flickr

As you’re nearing the point when you intend to receive your Social Security benefits, it may occur to you to question just when do these milestones take effect?  Just when are you considered first eligible for benefits, when are you at Full Retirement Age, and when have you reached the maximum age? When is your Social Security birthday? (it’s not when you think)

For Social Security age purposes, the month of your birthdate is important – but that’s not the date at which you reach the milestone.  It’s actually the month after your birthday, the month when you are that particular age for the entire month.

For example, if your birthdate is January 15, 1954, you will actually reach age 62 on January 15, 2016 – but you’ll be eligible for benefits beginning with February of 2016.  Likewise, since your Full Retirement Age is 66, you will reach Full Retirement Age by Social Security’s records as of February, 2020.

The Twists

The maximum benefit age of 70 (for Social Security’s purposes) is the month that you actually have your 70th birthday. For our example, this would be January, 2024.

The other time that this doesn’t follow is when your birthdate is the first day of the month.  For Social Security purposes, when you have the first of the month as your birthdate, you are considered as having the month prior as your birth month.  See When Your Birthday Isn’t Your Birthday for more information.

To illustrate, if your birthdate is February 1, 1954, you will reach age 62 on February 1, 2016 and for Social Security benefits, you’ll be eligible for benefits on that date as well. Same goes for age 66 – you’ll reach that age on February 1, 2020 and you’re at Full Retirement Age on that date as well. You’ll reach age 70 on February 1, 2024, but for Social Security purposes you reach age 70 on January 1, 2024.

File an Extension if You Don’t Have All Your Information

extension above the clouds

Photo courtesy of Joshua Earle via Unsplash.com.

If you find yourself without all of the information to file your tax return on time, or if you just haven’t got the time to fill out the forms, you can always file for an extension of time to file.  This is an automatic extension of six months – to October 15 in most cases.

This is only an extension of the time to file your return, not an extension of the time to pay any tax due.  You should send the tax due (your estimate of course) by April 15.

In an earlier article, we covered the fact that you should file your tax return on time, even if you can’t pay. This applies here as well, but in general you should pay if you’ve calculated that you owe.

Here are seven important things you need to know about filing an extension:

  1. File on time even if you can’t pay. If you completed your return but you are unable to pay the full amount of tax due, do not request an extension. File your return on time and pay as much as you can. To pay the balance, apply online for a payment plan using the Online Payment Agreement application at www.irs.gov or send Form 9465, Installment Agreement Request, with your return. If you are unable to make payments, call the IRS at 800-829-1040 to discuss your options.
  2. Extra time to file.  An extension will give you extra time to get your paperwork to the IRS, but it does not extend the time you have to pay any tax due.  You will owe interest on any amount not paid by the April 15 deadline, plus you may owe penalties.
  3. Form to file. Request an extension to file by submitting Form 4868, Application for Automatic Extension of Time to File US Individual Tax Return to the IRS. It must be postmarked by April 15. You also can make extension-related credit card payments, see Form 4868.
  4. E-file extension.  You can e-file the extension request using tax preparation software with your own computer or by going to a tax preparer who has the software.  You must e-file the request by midnight on April 15.  The IRS will acknowledge receipt of the extension request if you e-file your extension.
  5. Traditional Free File and Free File Fillable Forms. You can use both Free File options to file an extension.  Access the Free File page at www.irs.gov.
  6. Electronic funds withdrawal. If you ask for an extension via one of the electronic methods, you can also pay any expected balance due by authorizing an electronic funds withdrawal from a checking or savings account.  You will need the appropriate bank routing and account numbers. For information about these and other methods of payment, visit the IRS website at www.irs.gov or call 800-TAX-1040 (800-829-1040).
  7. How to get forms. Form 4868 is available for download from the IRS website or you can pick up the form at your local IRS office.

File your tax return on time, even if you can’t pay

wreckSo you’re up against the deadline for filing your taxes, and when you run the final numbers you discover that you’re going to have to pay a boatload of tax. Panic-stricken, you look at your bank account and see single digits, and there’s nowhere near enough left over on payday to make the tax payment. What should you do? Go ahead and file your tax return on time, even if you can’t pay.

If you have all of the information to file a correct tax return on time, you will avoid penalties for not filing. You’ll still have penalties for not paying on time, but at least you’re not compounding the problem by adding failure to file penalties as well. (In another article we’ll cover what to do if you don’t have all the information you need to file a correct tax return by April 15.)

Recently the IRS issued a Tax Tip (2015-53) which details some information about this situation. The actual text of this Tip follows:

File on Time Even if You Can’t Pay

Do you owe more tax than you can afford to pay when you file? If so, don’t fail to take action. Make sure to file on time. That way you won’t have a penalty for filing late. Here is what to do if you can’t pay all your taxes by the due date.

  • File on time and pay as much as you can.  You should file on time to avoid a late filing penalty. Pay as much as you can with your tax return. The more you can pay on time, the less interest and late payment penalty charges you will owe.
  • Pay online with IRS Direct Pay.  IRS Direct Pay is the latest electronic payment option available from the IRS. It allows you to schedule payments online from your checking or savings account with no additional fee and with an immediate payment confirmation. It’s, secure, easy, and much quicker than mailing in a check or money order. To make a payment or to find out about your other options to pay, visit IRS.gov/payments.
  • Pay the rest of your tax as soon as you can.  If it is possible, get a loan or use a credit card to pay the balance. The interest and fees charged by a bank or credit card company may be less than the interest and penalties charged for late payment of tax. For debit or credit card options, visit IRS.gov.
  • Use the Online Payment Agreement tool.  You don’t need to wait for IRS to send you a bill to ask for an installment agreement. The best way is to use the Online Payment Agreement tool on IRS.gov. You can even set up a direct debit installment agreement. When you pay with a direct debit plan, you won’t have to write a check and mail it on time each month. And you won’t miss any payments that could mean more penalties. If you can’t use the IRS.gov tool, you can file Form 9465, Installment Agreement Request instead. You can view, download and print the form on IRS.gov/forms anytime.
  • Don’t ignore a tax bill.  If you get a bill, don’t ignore it. The IRS may take collection action if you ignore the bill. Contact the IRS right away to talk about your options. If you face a financial hardship, the IRS will work with you.

In short, remember to file on time. Pay as much as you can by the tax deadline. Pay the rest as soon as you can. Find out more about the IRS collection process on IRS.gov. Also check out IRSVideos.gov/OweTaxes.

Spousal Benefit Filing: Real World Examples

grapes

Photo courtesy of Maja Petric via Unsplash.com.

This business of filing for Spousal Benefits is complicated, as we’ve discussed in the past. The options available are difficult to understand, and the timing of the choices can make real dollar differences in benefits.

Recently I received a couple of messages from readers that illustrate very good examples of Spousal Benefit decisions in real life. I’ve changed a few of the facts to protect each reader’s identity, but otherwise these are real world examples.

I’m using these real cases because I often hear from readers (as in these cases) that their situations are just so unique that the examples provided can’t be applied. Hopefully these real-life situations will help you as well.

Restricted Application or just file for my own benefit?

This first email illustrates the great benefit of utilizing the Restricted Application instead of filing for (in this case the wife’s) own benefit. It might seem like you’re not getting much for the extra effort, but as illustrated, there’s a significant benefit to using the Restricted application:

I just finished reading your latest Social Security book, and have read your online articles about Social Security, in particular on the Restricted Application process.  I think I understand, but my husband and I don’t fall neatly into one of your examples. Most of the scenarios are for people who have not yet made a choice, or are younger.

My husband is now 73, and began taking Social Security benefits at 65, about 8 months before his FRA. We don’t know his FRA benefit amount, and haven’t found it on the SSA website. At the time he retired we were unaware of the various SS maneuvers, so he just began receiving benefits.  He currently receives $2,400/month. I will turn 65 in September, and would like to retire soon after that, and can probably wait until 66 to file a Restricted Application, but am not sure that would be the right thing for our situation. My FRA benefit amount will be $1,100, and the amount at 70 is projected to be $1,600. Since we don’t know his FRA benefit amount, it’s difficult to calculate whether or not it would be a good idea to use the Restricted App, or just start collecting.

Thanks, P

Here is my response:

Hello P –

Even though you don’t know for sure what your husband’s FRA benefit amount would be, you know that it’s at least $2,400 since that’s his reduced amount. So if you file a restricted application your spousal benefit would be $1,200 (and probably a bit more, but we’ll remain conservative).

This by itself should help you to make the decision: if your own benefit at age 66 is projected at $1,100, of course at that time if you filed you would also file for the spousal excess benefit, taking your total benefit up to our calculation of at least $1,200. So – why would you *not* file a restricted application, and take the exact same $1,200 for 4 years, and then when you reach age 70 give yourself a bonus of $400 per month?

I used your projected age 70 benefit of $1,600 minus the $1,200 to come up with $400. Your actual age 70 benefit might be a bit less since you’re retiring at age 65 and not earning any more on your Social Security record after that point. Remember that the projection at age 70 from SSA assumes you’ve worked up to that age.

I think this is a pretty clear example of how knowing what to do can really pay off – in this case to the tune of $4,800 per year once you reach age 70.

Which of us should file for Spousal Benefits?

The second email is another example of the confusion that reigns with regard to the concept of Spousal Benefits. As you’ll see, you may need to do some calculations to understand if it makes sense for one spouse or the other to file for Spousal Benefits, and the timing of those filings.

My wife is 4 years older and I am.  She reached FRA (66) in June 2014 and had enough work credits so she filed for SS and began received benefits ($800/month).  I reach FRA in June 2018 and at FRA my SS retirement benefit is projected to be $2600.  I planned to delay receiving benefits until I turn 70.  When I reach FRA the spousal benefit for my wife ($2,600 x 50%=$1,300) would be greater than the $800 she receives now based on her earned benefits.  Can she switch from her benefits to spousal benefits when I reach FRA?  If I defer my benefits until I turn 70 can I file for spousal benefits until I turn 70 and then switch to my own SS benefits?

Thanks for your help – L

And here is my response:

Dear L –

Yes, your wife can file for spousal benefits based on your SS record when you file for your own benefit. If you are at or older than FRA when you file you can suspend at that time as well, allowing your benefit to increase by the delay credits up to your age 70.  That covers your first question.

With regard to your second question, if you file for your own benefit to enable your wife to receive the spousal benefit increase described above, you will not be eligible for a spousal benefit based upon her record. On the other hand, if you do not file for your own benefit, thereby delaying your wife’s receipt of the spousal benefit increase until you reach age 70, you could be eligible for a spousal benefit based on her record when you reach FRA.

In your case, it appears to make the most sense for you to file and suspend, allowing your wife to receive a total benefit of $1,300 (50% of your FRA benefit amount of $2,600).

If you went the other route, she would continue to receive $800, and you’d receive $400, which totals to $1,200. After you reach age 70 and file for your own benefit your wife would be eligible for the increased Spousal Benefit for a total benefit of $1,300.

The first option (for you to file and suspend) will result in $100 per month more in benefits over the 4 years between your age 66 and 70 versus the second option, a total of $4,800 that you’d leave on the table.

Book Review: Get What’s Yours

get whats yoursThis book, subtitled “The Secrets to Maxing Out Your Social Security” is written by Laurence J Kotlikoff (Professor of Economics at Boston University), Philip Moeller (of PBS NewsHour) and Paul Solman (also of PBS NewsHour). With this lineup of heavyweights in the Social Security commentary space, you are right to expect a very comprehensive, easy-to-understand, explanation of the subject – and that’s just what you get.

This book covers every component of the Social Security retirement and disability benefit landscape with the aim toward taking action on those components that you have a degree of control over, in order to maximize your lifetime benefits. The authors are extremely well-versed in the ins and outs of the system, providing insights not found in many other texts.

In addition to the authors’ own lifetimes of experience in covering the subject, every fact in the book has been reviewed by former Social Security veterans for accuracy. This book is the real deal.

Get What’s Yours is conversational in style, providing many examples of real-life situations that the authors have dealt with in their own lives and those of readers/listeners in the past. Sprinkled throughout the book are examples of actual text from official Social Security rules, which are usually incomprehensible, often laughable, but these drill home the point that relying on Social Security’s official documents will leave the average person’s head spinning. This book interprets these rules so that the spinning can stop. The outcome is an excellent guide for all facets of the Social Security retirement benefit arena.

The only thing that could have improved the experience (albeit at the cost of lengthening the book considerably) would be to increase the type-size. I know many of my readers have commented on the fact that they love the 14-point font that I use in A Social Security Owner’s Manual for the ease of reading by “experienced” eyes.

With so much on the line, literally a lifetime of benefits, folks who are nearing or in the range of Social Security retirement benefit filing age can’t go wrong by investing in the valuable education provided by Get What’s Yours.

Analyze your assets to avoid missing the mark

financial fitnessWhen we talk about financial fitness, one of the measures that is most important to the conversation is the value of our assets. There are really five different kinds of assets that we should consider:

Personal Assets. Clothing, furnishings, and jewelry fit into this category. Most of this “stuff” decreases in value to less than half what we paid for it before we even get it home.

Household Assets. This includes real estate, cars, and appliances. Most of these items either appreciate in value over time or provide a fair value over their life (in relation to renting the service). The total value of these assets must be reduced by any loans that we have against them – such as mortgages and auto loans. This will produce a net value of Household Assets.

Employment Assets. Some employers still provide for a pension for their employees’ retirement. This pension has a value, and should be considered an asset. Since most companies have under-funded their pension plans, you might discount the value of this asset, but you should still consider it if you have a pension available to you. In addition to the pension value, consider the value of your employability – this is an asset as well. If you are able to work and earn an income, this asset (your skillset and therefore your earning power) is one of your most valuable, especially in your earlier years.

Social Security Assets. Given that Social Security’s solvency is in question these days, often we don’t even think about this benefit as an asset. Unless it is eliminated entirely, though, we should still consider the value of this future income stream as an asset. It would be wise to discount it somewhat, due to the fact that the system is vastly underfunded and will become overburdened over the next several years as the Boomers continue retiring and drawing benefits.

Financial Assets. This is the 401(k) plan, IRA, brokerage, mutual fund and savings accounts that you’ve established. This one usually gets the most attention, because it tends to trump all the other types of assets. When you have plenty in this category, you don’t tend to worry about the other categories, because you can always use the money from here to buy the goods and services to cover those other categories. This is also one of the primary types of assets that we have some degree of control over.

Now for the good news – even though most of us don’t have anywhere near enough set aside in the financial assets category, it’s not impossible to build things up in order to make your future a little brighter.

The problem is that we have built up some unrealistic expectations about some of our asset types, and we need to deal with these in order to ensure a comfortable future.

The first of these illusions is that our personal assets will somehow contribute to our future security. Take a stroll through the Goodwill store and you’ll see the illusion of what those things are worth, should you ever need to sell them.

Secondly, and possibly the most harmful of these illusions, is that our household assets can be quickly turned into financial assets. This illusion is harder to break, because past generations have done this successfully: most retired residents of Florida and Arizona had very little in financial assets before they sold their household assets in New York or Chicago or Los Angeles. It doesn’t work as well for those of us in the great Midwest, where property doesn’t “bloom” in value every year. And as we saw in the Great Recession, these property values can be nothing more than an illusion.

So – how can you tell if you’re doing the right thing with your assets? Here are some basic benchmarks to consider:

  • If your monthly budget focuses more on Personal Assets than your Financial Assets, your focus is in the wrong place and trouble is on the horizon.
  • If your Household Assets are growing faster than your Financial Assets, you’re fortunate to live where you do. But you may be heading for a problem in the future, having to sell your home in order to provide funds to live on, because that’s where your money is.
  • And a sign that you’re headed in the right direction – if your financial decisions revolve around reducing your mortgage or increasing your financial assets rather than purchasing or paying for Personal Assets, then you’re doing the right things. Keep up the good work!

The two primary places that you should place focus on in order to improve your overall financial condition are your employment skillset and your personal Financial Assets.

There is no better way, at any point in your life, to improve your financial condition than to increase your earning power by taking on new skills. This earning power will translate in to more discretionary earnings each month, allowing you to add more to the savings plans that you have available to you. Handled carefully, both of these types of assets can serve you well for a long time into the future.

Get your billion back, Americans – time’s running out

Photo courtesy of Josh Felise via Unsplash.com.

Photo courtesy of Josh Felise via Unsplash.com.

Oftentimes folks with low incomes don’t see the need to file a tax return. Much of the time this is the correct way to go – after all, why go through the hassle and expense of filing a tax return for no purpose?

Unfortunately, many of these folks who didn’t file a tax return are actually due a refund of withheld tax, and possibly even tax credits that they weren’t aware of. The IRS has compiled a list of approximately 1 million taxpayers who didn’t file a tax return in 2011, and this group is due a total of approximately $1 billion in refunds.

The problem is that in order to claim these refunds, the tax return for 2011 has to be filed by April 15, 2015 – 3 years after the original filing date. If you don’t file by then, the refund is lost to you forever.

Recently the IRS produced a Newswire IR-2015-44 which details the information about these unclaimed tax refunds. Below is the text of the Newswire:

Keep reading…

Missing your SSA-1099? Here’s How to Get It

Photo courtesy of Kyle Szegedi via Unsplash.com.

Photo courtesy of Kyle Szegedi via Unsplash.com.

The Social Security Administration has a lot on their plate. Along with handling the tax rolls from some 150 million-plus wage earners, servicing around 50 million retirees and surviving spouses and 11 million-plus disabled workers and dependents, there are 10,000 baby boomers reaching retirement age each day. These folks (current recipients of benefits and newly-eligible) are generating nearly half-million phone calls a day to SSA’s 800 number, and nearly 200,000 per day visiting the local offices. Every day.

And they’re doing all this on administrative expenses of less than 1% of all the money they handle.

Much has been written about what the SSA is not capable of doing – such as advising folks on the best way to file – but little has been written about what they are doing well. One of those things is their website.  Keep reading…

Book Review: Finance for Nonfinancial Managers

finance for nonfinancial managersThis recently-released Second Edition is a wonderful book for folks who find themselves in the position of needing to understand financial reports, when the last time you looked at a balance sheet was in your first year of high school accounting.

Author Gene Siciliano has produced an excellent guide to the primary concepts of finance, written from the point of view that you have no background at all in finance or accounting.

Managers of all levels in today’s business organizations need to have at minimum a basic understanding of financial systems in order to be effective. Day-to-day decisions are influenced by information found in financial reports, and without being able to interpret these financial reports, you’re flying blind. Maybe you’ve been thrust into a management position without any training – and you need to have an understanding of financial reports to do your job. Gaining a better understanding (after you’ve got the basics down) of financial systems and reports can be an entree’ to advancement, as well.  Keep reading…

The Most Important Factor in Retirement Saving

planning for coffee

Photo courtesy of André Freitas via Unsplash.com.

We’ve all been there: making decisions about the ol’ retirement savings account. It doesn’t matter if it is a Roth IRA, a traditional IRA, a 401(k), or a deferred comp plan, there are many different decisions that you need to make.

It can be overwhelming, until you step back and realize that there are actually only three primary decisions to make about retirement savings:

  1. How much to contribute
  2. How to allocate between asset classes (stocks and bonds; as well as within the sub-classes like large-cap, mid-cap & small-cap stocks; corporate bonds, government bonds, etc.)
  3. Which funds/investments to choose

Keep reading…

Why Social Security Decisions Are So Tough

decisionIf you’re facing the decision of when to file for your Social Security benefit, you’ve probably noticed just how confusing it can all be. There are so many decision-points in the system, it’s no wonder folks are confused.  Depending on your point of view and how you count the decision-points, each person facing this decision has thousands of possible combinations to consider as they decide when to pull the trigger and file for benefits.

Recently I was going over a decision tree that I had built to describe the decision-making process for filing, and within this review I have counted that for a single, there are 14 decision-points and a total of 96 months in which a filing decision can be made, for a total of 1,344 combinations. Keep reading…

IRS Gives 5 Good Reasons for Direct Deposit

 

Since we’re in the middle of income tax preparation season, I thought it was appropriate to share some of the tips that the IRS has put forth. Today’s tip is to take advantage of direct deposit for your tax refund. It can be very handy to have this option specified on your tax return, as you’ll see below. It’s faster, more secure, and much more convenient than the old paper check method.

Below is the text of IRS’ Tax Tip 2015-23, which details some of the reasons that it makes sense to use direct deposit for your tax refund.  Keep reading…

Looking for a tax preparer? IRS can help

prepping peppersAlthough there are literally tax preparers standing on the street corners (sometimes in ridiculous costumes), it can be tough to find a qualified income tax preparer near you. Of course, word of mouth is a good way to find a preparer, by way of your family or friends – but what if you still can’t find a qualified tax preparer that you can trust?  Keep reading…