Taxes

Ask Larry: Did Social Security Overpay Us Spousal And Retirement Benefits?

Today’s Social Security column addresses questions about how spousal benefit amounts are calculated, whether previous COLAs can increase spousal benefit rates and when spousal benefits can be higher than retirement benefits. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc.

See more Ask Larry answers here.

Have Social Security questions of your own you’d like answered? Ask Larry about Social Security here.


Did Social Security Overpay Us Spousal And Retirement Benefits?

Hi Larry, I am 77 and took my full Social Security retirement benefit at age 66. My wife took her Social Security spousal benefit at 66. When turning 70 this past July, my wife took her Social Security retirement benefit. For three months Social Security paid both her retirement benefit and her spousal benefit.

Yesterday she got a letter from Social Security saying she was no longer eligible for the spousal payments since July, and can appeal that decision. Is there any basis in the Social Security regulations for an appeal? Thanks, Richie

Hi Richie, Once she takes her retirement benefit, your wife is eligible for her retirement benefit plus her excess spousal benefit. Her excess spousal benefit is half of your full retirement benefit less her retirement benefit with the difference reduced if she started her spousal benefit before full retirement age.

It sounds like her excess spousal benefit is negative, which they then set to zero. So unfortunately, it looks like you folks owe SSA three months of spousal benefits that you weren’t supposed to receive.

Sorry, for the bad news. But, you can run MaxiFi Planner. I’m sure you’ll find moves outside of Social Security that will more than make up for this loss. Best, Larry


Is Your Previous Answer Correct?

Hi Larry, Is my wife’s benefit based on my PIA at FRA or is it based on the COLA increased amount if she applies two years later for spousal benefits on my record? I read online that my wife should receive a higher benefit based on the my current benefit with COLAs. But shouldn’t it be based solely on my PIA at FRA of 66 years and six months? Thanks, Matt

Hi Matt, I’ll give you an example to explain how it works. Let’s say Bill started drawing his benefits five years ago at his full retirement age (FRA). Bill’s PIA at that time was $2,000, but his PIA has risen to a current amount of $2,200 as a result of cost of living (COLA) increases.

Next, we’ll say that Joe’s wife Amy is turning FRA and is filing for spousal benefits. Amy doesn’t have enough Social Security earnings credits to qualify for her own retirement benefits, so she is only eligible for spousal benefits. Amy’s unreduced spousal benefit rate would then be $1,100, or 50% of her husband’s current PIA. Best, Larry


Will My Wife Get A Higher Payment Once I Retire?

Hi Larry, I am considering retiring in January at 66 years and six months. My wife who is 63 started taking her retirement benefit at 62. My benefit would pay about $2,650, She currently gets about $700 for the past 11 months. Will she get a higher payment once I retire? If so, how much? Thanks, Alan

Hi Alan, Yes, it sounds like your wife will be eligible for some additional spousal benefits once you start collecting your Social Security retirement benefits. Your wife’s unreduced spousal rate would be calculated by subtracting her primary insurance amount (PIA) from 50% of your PIA.

A person’s PIA is equal to their Social Security retirement benefit rate if they start drawing their benefits at full retirement age (FRA). However if your wife hasn’t reached her FRA by the time you start drawing your benefits, then her spousal rate will be reduced for age.

Another thing that you should consider when deciding when to start your benefits is the effect that will have on your wife’s potential survivor benefit rate. The surviving member of a couple can be paid up to the higher of their own benefit rate or their deceased spouse’s benefit rate, so if you start drawing your benefits now as opposed to at 70, you’ll significantly lower the monthly rate that your wife could be paid if you die before her.

You may want to consider using my company’s software — Maximize My Social Security or MaxiFi Planner — to ensure your household receives the highest lifetime benefits. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry


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