Mistakes Made

With the heat outside, many of us are choosing to stay indoors and some are catching up on financial planning issues which of course in some cases includes Social Security decisions.  Two consultations I had are worth exploring and both deal with them receiving bad advice from advisors.

Case #1

Mary (not real name) 68 is waiting until 70 to claim her own benefit projected benefit of $3,100 / mo.  Mary was married to Paul for 18 years, but they divorced in 2005.  Paul passed away in Jan 2014 at age 60.  Mary did not remarry, thus was eligible to claim survivorship benefits at age 60 (Sept 2014).  Even though Mary was working her earnings were below the Earnings Test, thus there would be no reduction in survivorship benefits.  She did not know she was eligible for benefits!

In January 2017 she was referred to an Elder Law Attorney in regards to claiming survivorship benefits.  She provided the attorney with marriage certificate, divorce decree and even had death certificate, her earned income in 2016 was ZERO.   She was advised she was not eligible for Survivorship Benefits and that she should defer claiming on her own record until age 70.  She was billed $600 for the consultation.

In June, Mary was referred to me by a satisfied client of mine to readdress this issue.  I informed Mary that she was indeed entitled to survivorship benefits and that she should have claimed benefits in 2014.  We reached out to SSA to start benefits immediately and we requested and were approved to receive retroactive benefits (maximum 6 months).

UPDATE:  Mary hired me to determine how much in benefits she lost by not claiming in 2017 when she met with the Elder Law Attorney.  The amount was $102,000 without taking into consideration the time value of money.  She is in the process of recouping that amount!

Case #2

Both June and Paul qualify for Social Security on their own earnings history.  However, June’s benefits at FRA (Full Retirement Age) $600 / mo. while Paul’s benefits are projected to be $3,285.   In 2018 they met with their financial advisor and he suggested that Paul delay until 70 before claiming (Good Advice), but since June’s benefits were much less she should claim at 62 on her own record (Bad Advice).

PROBLEM:  Yes, June has received benefits for the past 5 years, but since she claimed at age 62 she was subject to a 28% reduction or $168, thus her initial check was only $432 per month.  When Paul claims at age 70 she will be entitled to spousal benefits (50% of his PIA which is projected to be $3,285).  However, since she claimed benefits at 62 that 28% penalty will carryover to spousal benefits, thus her check will be $1,180 instead of $1,641 which is a $460 per month reduction in benefits without factoring in any COLA’s.

Doug is in good health and his parents are still alive and in their 90’s, thus if Doug also lives into his 90’s June will be subject to reduced benefits for the next 20+ years.  Should Doug predecease June she would then be eligible for 100% of whatever Doug’s benefits were at the time of death and the penalty would go away.

CONCLUSION:  When there is a big difference in benefits and one spouse’s benefits are relatively low, one should not claim benefits on the lower earning spouse, especially if the other spouse is healthy and longevity runs in their family!

Taking a Mulligan

When one decides to claim there is a 1 year period where you can withdraw your application, payback what you’ve received and go forward as if you hadn’t claimed at all.  You only get 1 mulligan in your life and you cannot go past 12 months after your initial claim.  Thus, in June’s case she would have to had withdraw her application within the first year, which she did not.

In Conclusion

If I bought and used Turbo Tax would that make me an expert in tax law?  I think not!  There are 2700 rules relating to Social Security claiming!!!  I’ll let you make your own decision…..

Always here for you,

David P. Zander
CFP Emeritus Board ™