Social Security Q&A: What Am I Potentially Giving Up If I File At 62?Commentary by Laurence Kotlikoff
August 11, 2014
Social Security may be your largest or one of your largest assets. How you manage it, by deciding which benefits to collect and when, can make an absolutely huge difference to your lifetime benefits. And those with the highest past covered earnings have the most to gain from maximizing their Social Security.
I’ve been answering questions and writing columns about Social Security each week for the past two years on PBS NEWSHOUR’s website. The editors at Forbes asked me to post a Q&A each day from those columns. To see all my columns, please go to my software company’s site, www.maximizemysocialsecurity.com, and click More Press below the WSJ quote.
Today’s question asks about the significant reduction to benefits caused by filing at 62. While cash flow constraints may of course make early receipt of benefits necessary, over the life of your retirement you may be substantially better off if you can find a way to avoid taking benefits early.
Question: I will be 62 in January 2014 and plan to file for Social Security. I know I’m looking at a 25 percent cut in benefits, but I have no income now and need whatever I will get. When my husband files for his benefits, regardless of age, will I be able to suspend my payments and take spousal benefits under his account?
Answer: The answer is yes, but once you file for your own retirement benefit, even if you file for it and immediately suspend it or suspend it after receiving retirement benefits for a while, your spousal benefit will be calculated as an excess spousal benefit, not a full spousal benefit. The full spousal benefit is half of your husband’s full retirement benefit. The excess spousal benefit equals the full spousal benefit minus your full retirement benefit. If this difference is negative, the excess spousal benefit is zero.
If you take your retirement benefit before your husband takes his, you won’t be forced to apply (deemed to be applying) for a spousal benefit. Once your husband does take his retirement benefit, you’ll be able to collect an excess spousal benefit, but again, it may be negative. You can only get a full spousal benefit by making it to full retirement age. If you try to apply just for a spousal benefit before full retirement age, you’ll be deemed to also be applying (filing) for your retirement benefit and, therefore, you’ll be stuck with the dreaded excess spousal benefit forever.
Once you reach full retirement age, you can apply just for your full spousal benefit and wait until 70 to collect your own retirement benefit, when it will be at its largest value. But as soon as you hit 70 and file for your own retirement benefit, you’re back in the dreaded excess spousal benefit world and your new spousal benefit may be zero. In this case, you’ll just get your own retirement benefit. And by the way, once you are over full retirement age, your excess spousal benefit is computed differently. It’s calculated as your full spousal benefit minus your own full retirement benefit augmented by the delayed retirement credit. If your excess spousal benefit isn’t zero, you’ll get a check (before deductions for Medicare Part B premiums) equal to the sum of your own retirement benefit, including the delayed retirement credit plus your excess spousal benefit. But, given how the excess spousal benefit is calculated, this all amounts simply to your full retirement benefit. So, if you did wait until full retirement age to take your full spousal benefit, you may end up getting nothing more starting at age 70 (apart from Social Security’s annual cost-of-living adjustment).
Having said all this, I realize that you need money right now and that waiting until full retirement age to start collecting may not be in the cards. But if there is any way you can swing this — by working or using a retirement account or having your husband earn more or downsizing — please consider it because you are likely to live for another 40 years and that’s a long time to be collecting much lower benefits than you’d otherwise collect. Our Software, which costs $40, can help you see the trade-offs here and precisely what you’ll get under different scenarios.