Social Security is in the news because of President Bush’s reform proposal. But there are a number of issues regarding the current system that are real head-scratchers for beneficiaries. Let’s take a look at the confusing issues I hear about most.
Survivor’s vs. retirement benefits. A spouse or ex-spouse might be eligible for his or her own retirement benefits and survivor benefits from a deceased spouse’s earnings history.
But you cannot take both benefits at once. You can take the higher benefit, and you might be able to change over time. For example, take survivor benefits before getting old enough to take your own retirement benefits. After reaching full retirement age, switch to your own retirement benefit if it is higher.
Ex-spouses. If you are divorced and haven’t remarried, you are eligible for retirement benefits based on your ex-spouse’s earnings record. You and the ex-spouse must have been married for at least 10 years for you to qualify.
The ex-spouse’s marital status doesn’t matter. It also doesn’t matter whether or not the ex-spouse and any new spouse are taking benefits. You can begin receiving the benefits when you reach retirement age. Thus, there can be three or more people taking benefits based on the earnings history of one person, if that person married at least twice.
If you have been married less than 10 years, you might want to consider delaying a divorce until the 10 year point is reached.
Losing survivor’s benefits. You lose the right to claim survivor benefits if you remarry while younger than age 60 and stay married. In that case, your claim to benefits based on the deceased spouse’s earnings record is lost. You can claim benefits based only on the second spouse’s earnings record or your own record.
Spouse’s benefits. If you are married, you can collect benefits under either your own earnings history or your spouse’s. You can select the higher benefit.
But there is one catch. If you begin collecting before your full retirement age, benefits will be reduced no matter which earnings history you use or how old your spouse is. Here’s another trick. If your spouse is not yet old enough to begin collecting benefits, you might get a lesser benefit by collecting on his or her earnings. You can switch to a higher benefit after your spouse begins collecting benefits.
Working and benefits. Earned income reduces benefits received before full retirement age. In the year full retirement age is reached, benefits are reduced by $1 for every $3 earned over a limit ($31,800 in 2005) until the month full retirement age is reached. Before that year, benefits are reduced $1 for every $2 earned over a limit, which is $12,000 in 2005.
For example, a 62-year-old earning $30,000 in 2005 and due $7,200 in benefits would lose all Social Security benefits. If he earned $20,000, $4,000 of benefits would be withheld.
At full retirement age, the benefits due will be recomputed to give you some credit for the lost benefits. For example, if you began receiving benefits at 62 and by full retirement age had lost a full year’s benefits, then your benefits will be recomputed as though you began receiving benefits at 63. But there’s a trick. The recalculation uses only months in which your entire benefit was forfeited for excess earnings. Months in which only a portion of the benefits were lost won’t count.
The rules are complicated. Social Security claims its telephone service is 97% accurate. That doesn’t do much good if you are in the unfortunate 3%. If you use the Social Security helpline (800-772-1213), call more than once to see if you get the same answer. Even better, consult written materials. In addition to the Social Security web site (www.socialsecu-rity.gov), go to www.ncpssam.org. Check its “Ask Mary Jane” feature.