ZestNow: Some women tell us they’re eager take payments as quickly as possible. Is there a downside to that?
Susan Garland: There is definitely a downside—a big one. If you’re a single woman and collect early, at 62, your benefit will be reduced by a fraction of a percent for each month you claim before your full retirement age (For those born between 1943 and 1954, full retirement age is 66.) For each year you wait to collect past 66 until you are 70, you will get an extra 8% in delayed retirement credits.
Here’s an example: Say you’re due $2,000 at your full retirement age of 66. If you claim at 62, you will get $1,500. Wait until 70, and your benefit jumps to $2,640—76% more than if you claimed at 62. And that does not include compounded cost-of-living adjustments.
Considering that women have longer life expectancies than men, it makes sense for women—single women in particular—to delay. Research shows that even women with average life expectancies can expect to receive larger cumulative benefits over their lifetimes if they delay to full retirement age or later than if they claim early.
ZN: Are their situations where it might be wise to collect at 62?
SG: Of course. If a woman believes that she will have a shorter-than-average life expectancy, she should claim early. Also, if she really needs the money, she should consider claiming early. However, if she’s still working, it’s not a good idea to claim before full retirement age. The Social Security “earnings limit” will reduce benefits by $1 for each $2 earned over $14,640 in 2013.
ZN: What if I now feel I took benefits too early?
SG: If you changed your mind within a year after claiming your benefits, you can apply to withdraw your application and reapply later. When you withdraw, you need to pay back all of the benefits you have received. You do not have to pay interest, though. You need to file a Request for Withdrawal of Application (Form SSA-521).
Also, retirees who are already collecting benefits can reset the clock by voluntarily suspending benefits and reapplying up to age 70. You need to be full retirement age to suspend benefits. Let’s say you were eligible for $2,000 in benefits at age 66, but took a 25% cut by claiming at 62. At 66, you suspend your benefits and reapply at 70. Your benefit at 70 would be $1,980, or 132% of your $1,500 benefit—not including cost-of-living adjustments.
ZN: We’ve heard there is an interesting strategy for married couples. Could you explain?
SG: It’s in a married couple’s interest to coordinate their start dates. They can boost their cumulative lifetime benefits by making the right moves. Also, if the wife is the lower earning spouse, a husband who delays until 70 will boost the value of the survivor benefit if he dies first. One of the most important rules of thumb for most married couples: If one spouse is expected to live well beyond age 80, the couple’s cumulative lifetime benefits will be usually highest if the higher earner delays claiming his benefits until 70.
One strategy is called the “file and suspend” strategy. Let’s say the husband is the higher earner and wants to delay until 70. If his wife is 62 or older, she could collect a benefit based on her own record—but perhaps she’d get more money with a spousal benefit, which could be worth up to 50% of his. One catch: She can’t collect a spousal benefit until he files for his own.
As long as he’s full retirement age, he can file for his benefit and his wife applies for a spousal benefit. He then asks Social Security to suspend his benefits. His wife will still receive a spousal benefit, and he can continue to accrue delayed credits, up until age 70.
ZN: Am I entitled to any benefits as a divorced woman. What if I remarry?
SG: Yes, you could be entitled to either a survivor or spousal benefit—and it won’t cost your ex a penny. To be eligible for a spousal or survivor benefit on an ex-spouse’s record, you must have been married for at least 10 years and not be entitled to a higher benefit based on your own record. If you’ve been married more than once, for more than 10 years to each spouse, you may be able to select the best benefits among your former spouses.
The rules are a bit different for spousal and survivor benefits. To collect a spousal benefit based on an ex-spouse’s earnings record, you must be 62 and unmarried. If you remarry, you will lose the spousal benefit of your former spouse, but you can reapply if that second marriage ends in divorce or death.
For the most part, the Social Security rules regarding spousal benefits are the same for divorced couples as for married couples. For instance, if you collect a spousal benefit when you are at full retirement age, it’s generally 50% of your ex-spouse’s benefit. The benefit will be reduced by a certain percentage for each month you collect before you reach full retirement age.
Even if your ex-spouse has not applied for benefits, you may be allowed to collect spousal benefits. To qualify, your former spouse must be eligible for benefits, which means he or she must be at least 62, and you must have been divorced for at least two years.
To collect a survivor benefit on a late husband’s record, you need to be at least 60 (or 50 and disabled). If you’re already entitled to a survivor benefit on your late spouse’s record, your benefits will continue even if you remarry.
You don’t have to collect immediately after an ex-spouse dies. You’re better off waiting until you are full retirement age to claim benefits. At that point, the survivor benefit will be 100% of the deceased ex-spouse’s benefit. It will be reduced if you claim it earlier. If you are already receiving a benefit based on your own earnings record, you will continue to receive your benefit plus a check for the difference between your benefit and the survivor benefit. And if you were collecting a spousal benefit on your ex-spouse’s record, you can switch to a survivor benefit if the ex dies.
You need to provide Social Security with a certified copy of your divorce decree to claim any of these benefits. To expedite your application, you should have your ex’s Social Security number, too. Social Security will not notify your ex.
ZN: What is the situation if one is a widow?
SG: A widow or widower is entitled to a survivor benefit that is equal to 100% of the deceased spouse’s benefit, as long as the survivor waits until full retirement age to collect. If a survivor claims a survivor benefit earlier, that benefit will be reduced somewhat. You can collect a survivor benefit as early as age 60.
Your benefits will continue if you remarry as long as those benefits are larger than what you are entitled to on your own work record or the benefits of your new spouse. You must notify Social Security when your spouse dies.
You can collect a survivor benefit early and then switch to your own benefit late. Switching only makes sense if your own benefit when you switch will be worth more than the survivor benefit. Collecting that survivor benefit early may enable you to afford to delay claiming your own benefit.
Generally, you must be married to your late spouse for nine months before you can apply for a survivor benefit. There are several exceptions, including if you are the parent of the deceased’s child.
ZN: What if my last name has changed over the course of time?
SG: If your last name has changed, simply contact the Social Security office. You can also make the change online at www.ssa.gov.
ZN: Are my Social Security payments considered part of my income for tax purposes? Do I have to report it when I file income tax?
SG: Your Social Security payments are considered part of your income for tax purposes. You will have to pay federal taxes on your Social Security benefits if you file a federal tax return as an individual and your total income is more than $25,000. If you file a joint return, you will have to pay taxes if you and your spouse have a total income of more than $32,000. You will pay tax on up to 50% of your benefits or up to 85% of your benefits, depending on your income.
By January 31, the Social Security Administration will send you a SSA-1099, which shows how much you have received in benefits for the tax year. You will include the form as part of your tax return. The IRS also will be notified by the Social Security Administration.
ZN: How does Medicare work with Social Security?
SG: You will automatically be eligible for Medicare Part A, which pays for hospital services, if you or your spouse paid Medicare payroll tax for at least ten years. Part A is free. If you’re divorced, you also are eligible on your ex-husband’s record, as long as you meet the requirements above. You need to be 65 to qualify for Medicare, unless you receive Social Security disability payments.
If neither you nor your spouse paid Medicare payroll tax for ten years, you can buy into Part A at premiums ranging from $248 a month to $451 a month. Whether you enroll in Part A or not, you can still enroll in Part B, which pays for outpatient services.
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