Q: I am 53 and my wife is 50. We have had a very successful business and have made enough lucrative investments so we have been able to sell the business and retire. But now we are a bit concerned about our future Social Security benefits.
We could start another business, and pay ourselves a salary, just so we continue to pay into Social Security until our mid-60s. But we are not sure if we will be compensated enough in potential Social Security benefits to offset all the Social Security taxes we will pay. Can you help?
A: You really need to talk to a financial planner about this — not me. And frankly, I’m surprised you are even thinking about Social Security. If you could afford to retire comfortably in your early 50s, it seems to me that future Social Security benefits wouldn’t be much of a concern for you. But since you brought it up, I’ll give you some food for thought.
Your Social Security benefit will be based on your highest 35 years of earnings. If you remain retired, you will be missing out on about 15 years of what would normally be some of your highest years of income. And this will have an obvious adverse impact on your future Social Security benefits.
To find out how much of an impact, you should use the retirement calculators at the Social Security Administration website. Just click on the “retirement estimator” link and follow the instructions. You can plug in various future earnings scenarios to come up with different estimates of your eventual retirement benefits.
And as long as you are thinking about Social Security, here is something else to consider. Statistically, there is about a 30 percent chance that you or your wife will become disabled before you reach retirement age. And to be eligible for a Social Security disability benefit, the law says you need to have worked and paid Social Security taxes in five of the last 10 years before you become disabled.
In other words, if you and your wife continue on your present course with no more Social Security-covered work, you will lose potential disability coverage by your mid-50s. That’s probably not a game changer for you, but it is something to think about.
Q: I am 70 and have been getting my Social Security since I was 68. My wife is turning 62 on July 10. She has never worked outside the home. When should she file for spousal benefits so that her checks start in July and she starts getting half of my Social Security?
A: If she wants to start her benefits at age 62, she will NOT get half of your Social Security. At that age, she’d get about a third of your regular benefit rate.
If she wants to get that one-third rate at 62, she can file now. Social Security rules say you can file up to three months before you want your benefits to begin.
But here is a little twist to her situation. There is a law that says she must be age 62 for an entire calendar month before she is due a Social Security benefit. And August is the first month she will be 62 for an entire month. So if she wants benefits at age 62, the first check she will be due is for August, which will be payable in September. (Social Security checks are always paid one month in arrears.)
She still can file for those benefits now, even though she won’t get her first check until September.
On the other hand, if she wanted to get one-half of your basic benefit, she would have to wait until age 66 to file her spousal claim.
Finally, I should make this point. You said you started your benefits at age 68. So you got two years’ worth of “delayed retirement credits” added to your basic benefit rate. But your wife’s spousal benefit, whether she takes one-third now or one-half later, is based on your full retirement rate (your age 66 rate) not on the augmented benefit you are currently receiving.
In other words, a spouse does not share any of the delayed retirement bonus paid to a retiree. But a widow does. So when you die, your wife’s widow’s benefit will be based on the total benefits you are receiving at the time of death.
Q: I took my Social Security at age 66. My wife, who was a stay-at-home mom, is about to turn 62. We are considering having her file for reduced spousal benefits now, rather than waiting until she is 66. But someone told us that if she takes these reduced benefits now, the reduction will carry over to any widow’s benefits she is due later on. Is this true?
A: No, it’s not true. A widow’s benefit rate is essentially based on one thing only: Her age at the time she becomes a widow and files for widow’s benefits. (Although had you taken reduced retirement benefits, that reduction would carry over to her potential widow’s benefits.)
Assuming she will be 66 or older when you die, she will start getting a widow’s benefit that equals 100 percent of your full age 66 benefit amount.
If she is under 66 when you die, her widow’s rate is reduced roughly one-half of one percent for each month she is under that full benefit age.
Q: I am a 72-year-old widow. For reasons too complicated to explain, I am estranged from my grown children. But I absolutely adore my youngest grandchild who is 15 years old. I want to make sure that she gets the $255 death benefit that will be payable when I die. How do I go about arranging that?
A: I’m sorry, but you can’t arrange that. The law says the Social Security death benefit can only be paid to a spouse who was living with you at the time of death. Or it can be paid to a minor child whom you were supporting at the time of death. And that means your own child, not a grandchild.
