My epiphany about spousal benefits and Social Security (beach, inheritance, relative)
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I second this! LOL!! I know that is way too much work and would never expect anyone top do this, i just wish i could wrap my head around the info you have presented here! Maybe its my inattentive GenX brain.
Some of the regulars on this site might know that I have begun posting in the past month or so trying to weigh in with my experience and knowledge of Social Security. I began to work right out of college- age 22, for the Social Security Administration. After 13 weeks of full time classroom training, I was assigned to the Downtown office in lower Manhattan and worked there 14 years, first as a claims representative, then a field representative (giving pre-retirement seminars to major corporations and businesses in lower Manhattan) Later I transferred to the suburbs of NJ when I had my children. I worked the last 21 years in Elizabeth, NJ. I became a "technical expert"- really a glorified claims representative, but actually a senior employee, mentor, trainer etc. My 35 years were all dealing with the public, not in management. After I retired in 2008, they called me back two times as a "re-employed annuitant" to help them during the recession when the baby boomers were applying in overwhelming numbers for disability. I last did that in 2010. I say all this to give you my background before I explain what was happening that was very puzzling about spousal benefits. A number of you have referenced Lawrence Kotlikoff, I think he might be a Harvard professor, who wrote a book about SS, and an article in Forbes called "44 Social Security Secrets All Baby Boomers and Millions of Others Must Know." He speaks on NPR regularly and also has a business where you can buy tailored advice.
Now, I keep this article on my bookmark tab and have read it many times. It is not easy reading, and I obviously am familiar with all the terminology, the computations, the policies etc. He was really harping about spouse's, and that the way SS determines how much a spouse receives is dependent on whether or not they have taken reduced retirement and if you did, you did not ever get 1/2 of your spouse's FRA. All true. Now, a number of folks on here wrote about having an older spouse, the lower earner, and if that spouse starts to get benefits at 62, can they still get 1/2 of their FRA when they are 66. Kotlikoff had an example (#6) with Sally and Joe, but the ages and sexes were reversed from the questions posed on here. Sally was younger- 4 years younger, and Sally also was the high earner. Joe was 66 and the low earner. Last night, while looking over posts from this site, I was reading an older, long thread started by DaveinMtAiry. Dave is the higher earner, his wife the lower, his wife is older (by 2 years) and their FRA's are past 66. Dave's is 66 and 10 months and his wife's is 66 and 6 months- meaning he was born in 1959 and she in 1957. Dave was wanting to know if his wife began collecting at 62, could she get half his benefit at her FRA. At the same time, another person wrote me privately about their situation- and gave me some figures to use. That was good, because now, I had concrete numbers to plug into the scenario. But, I needed to rewrite Kotlikoff's situation to match DaveinMtAiry, so I replaced the word "Sally with Dave" and replaced "Joe with Joann". I then replaced the pronouns and applied Kotlikoff's scenario to Dave and his wife using the figures the other poster gave me. When I did that, I finally was able to have the spouse get 1/2 of her husband's FRA at her FRA! But here is the catch- the wife (Joann) cannot take the reduced retirement- the husband (Dave) is the one who takes the reduced retirement. If the higher earner husband takes his benefit reduced when his older wife is FRA, she can receive 1/2 of his FRA. Then, Kotlikoff says, when the hubby is his FRA, he suspends until he is 70. Meanwhile, Joann is receiving spousal only until she turns 70. Then, she applies for retirement for the first time. Now, when I did this, her retirement, plus delayed retirement credits, was still less than 1/2 of Dave's. I said "what's the point of that- but, I went back to Kotlikoff and he said, and it is correct, that the excess spousal (1/2 of husband's FRA, minus wife's full FRA = spousal) gets added to whatever the wife is receiving at the time she files for her retirement. In this scenario, Joann doesn't apply until she is 70 so it gets added to the FRA/DRC amount. In all the questions previously, we were adding it to her reduced retirement amount. But, now, that we add it to her FRA/DRC amount, it exceeded 1/2 of Dave's FRA. When Dave turns 70, his delayed retirement credits get added to his MBA (monthly benefit amount- not his FRA- because he took benefits reduced). But, it finally made sense!
Here are the figures I used for Dave and Joann:
Dave's FRA is $2450.00. Joann's FRA is $890.00.
Dave's reduced retirement- 2 years early(24 reduction months) = $2123.00
Joann's reduced retirement (if she was taking it-but in this example, she is not) $648.00 (age 62+1)
Joann at FRA -gets 1/2 of Dave's $2450 =$1225.00
Dave at FRA = suspends and gets 0.00 for 38 months. (because his FRA is 66/10 there are only 38 months until he turns 70)
Dave at 70 - gets his 38 DRC's which is an extra 25.33% added to his reduced retirement of $2123, for a total of $2660.00.
Joann at 70 -gets her $890.00 own retirement, plus DRC's of extra 28% ($249.00) plus her excess spousal of $335.00 for a total of $1474.00.
Joann's excess spousal amount $335.00 (take 1/2 of Dave's $2450= $1225. Subtract her FRA of $890.00. It leaves $335.00.
If Dave dies first, Joann goes to $2660.00.
I hope this has helped folks. I know I feel better.
These "spousal benefit" schemes...er...strategies need to be jettisoned. And before even one person's EARNED benefit is reduced due to projected shortfalls.
it is exactly these spousal schemes that save the system a fortune. it is just because of them many delay their own much higher benefits and die never collecting them.
so many more would just file for their early benefit instead of a tiny spousal one . that would really stress the system if everyone lived to collect more money.
We are having a representative from Social Security come to our workplace and discuss the plan.... I hope to dog they speak in a language we are familiar with.
This Windfall elimination thing really bothers me.
My spouse and I live on his SS and two pensions (both his). He took his at FRA. He is now 73 and I am 60. SS is $1800/month.
In two years, I will be eligible to collect my own SS, which will be about $660/month.
Should I go ahead and collect my own SS at age 62 and then file for spousal benefits at FRA? Do spousal benefits apply if the spouse is still alive? Do they continue after spouse has passed away?
It should be straightforward but isn't. If I pass away, his benefits don't change. If he passes away first, my benefits go down to half. Is that right?
My spouse and I live on his SS and two pensions (both his). He took his at FRA. He is now 73 and I am 60. SS is $1800/month.
In two years, I will be eligible to collect my own SS, which will be about $660/month.
Should I go ahead and collect my own SS at age 62 and then file for spousal benefits at FRA? Do spousal benefits apply if the spouse is still alive? Do they continue after spouse has passed away?
It should be straightforward but isn't. If I pass away, his benefits don't change. If he passes away first, my benefits go down to half. Is that right?
Woof.
Yes, spousal benefits apply when your husband is alive. It is called survivors benefits when a person dies.
If he dies first, and if you are over your full retirement age at that time(66), (no matter when you started) your benefits will go to 100% of your husband's benefits. This is true in your case because your husband did not take reduced benefits. The 100% is a combo though- it includes what you were already receiving on your own and as his spouse.
Now, if you decide to collect when you are 62, you not only are due your own, but you are due benefits as his spouse. I am going to assume the $1800.00 is after Medicare is deducted, so I will make his "gross SS" $105.00 more, or $1905.00.
If you do decide to collect your own at 62, SSA uses your full amount (which is approx. 25% more than the $660.00, so I will use $825.00) and SSA uses 1/2 of your husband's $1905.00 which is $952.00. They subtract the $825 from the $952 and that leaves $127.00. The $127.00 is then reduced for your age, or approximately 30% reduction, which is $38.00. $127 minus $38 leaves $89.00, which is then added to your reduced retirement of $660.00. So you get a combined retirement/spousal at age 62 of $749.00.
Now, the only way you can get the true 1/2 of your husbands or $952.00 is to not take your retirement at 62, but at 66, your full retirement age. Then you would get $825.00 of your own plus the $127.00, which is $952.00.
But, you also have another option. At 66, you can still not take your own retirement, but let it ride until age 70. You can still start at 66 to get the 1/2 of your husbands, the spousal only, the $952.00.
Then, here's what happens at 70: You get your full retirement, the $825.00, plus another 32%, with delayed retirement credits, ($264.00) plus the spousal of $127.00, for a combined benefit of $1216.00.
Happy deciding!
Last edited by ilovemycat; 04-11-2015 at 02:38 PM..
Reason: more info.
I have read about a maximum amount that a "household" can receive...
could you explain what that is and how the amount is determined, who it affects?
Child benefits and spousal benefits are subject to a family maximum, which limits the total monthly amount payable from the primary beneficiary's earnings record. The family maximum for retirement and survivor benefits ranges from 150 percent to 188 percent of the worker's benefit, and the family maximum for disability benefits ranges from 100 percent to 150 percent of the worker's benefit. If the total amount payable to the primary and auxiliary recipients exceeds the family maximum, then child benefits, along with any spouse or widow benefits, are reduced proportionally.
However, divorced spouses and surviving divorced widows do not affect the amount of the benefits paid to the spouse, widow or children.
Let's say Paul dies at age 46 and leaves 2 minor children and a stay at home young mom. Paul also was married to you earlier in life (say at age 22 until you guys divorced at age 34). He married the new wife right away (maybe that is why you got divorced) and proceeds to have children with her.
If his Primary Ins Amount was $2400.00 a month, the family maximum in his case could range from $3600 to $4512.00. So, a surviving child or spouse is normally due 75% of Paul's PIA, or $1800.00, but "subject to a family maximum." So if Paul's 2 children and his wife want to collect benefits, the family maximum comes into play. If his family maximum was the $3600.00, each beneficiary receives $1200.00. If his family maximum was $4512.00, each would receive $1504.00.
Now, when a child ages out, the other beneficiary or 2 can go up in amounts. So when their first child graduates HS, the 2nd child and mom can then have the family maximum, divided by 2, which will pay the true 75%, or $1800.00.
If by the time you come along, and if there were still children, you coming on to his record does not affect the apple cart. Because you guys were divorced.
But, and here is a somewhat common occurrence - Alice comes along. She says that Paul fathered her child and her child is only 3 years old (or really any age before 18). If she can prove that Paul was the dad, well, then the mom with the 2 children now have to split the family maximum with the child Alice said was Paul's.
Unfortunately, sometimes we find "whole other families out there". And, they don't know about each other until the funeral! Always made the job interesting, but also a lot of work to sort it all out!
ilovemycat, thank you SO much for your response. It was very informative.
So, if my spouse dies when I am 66, what we had both been receiving (1800) would be reduced to half? If I die, nothing changes for him. He still collects his full benefit, correct?
I would not be eligible to collect my benefits at that point (age 66) in addition to survivors benefits to make up for the loss of half our income?
He is thirteen years older than I am and not in great health, which is why I am asking these difficult questions. It sounds as though I should just go ahead and collect my own reduced benefits at age 62 and then switch to survivor's benefits at age 67, assuming he is no longer alive.
Confusing stuff!
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The SS "Family Maximum"
