Ask Larry: How Can My Wife Avoid Social Security’s Deeming Rules And Take Retirement Before Spousal?

Today’s column addresses questions about how even with the deeming rules, it can still be possible to receive only retirement benefits before later spousal benefits, survivor’s benefit rates is the record holder dies before claiming and how the WEP and the GPO work. 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.

How Do Social Security’s Deeming Rules Apply To Us?

Hi Larry, I am 62 and my wife is 66. Both of use plan to defer taking Social Security until we are 70. I am the higher income earner. When my wife turns 70, we planned for her to take her retirement benefit at its maximum.

Since I am waiting until I turn 70 to start my benefit, she cannot apply for spousal benefits. What happens when I turn 70 and begin taking retirement benefits since she will be 74? Will her benefits go up to 1/2 of mine? Or will it be less than half my benefit at 70?

My FRA estimate is about $3,000 and hers is about $1000. Our age 70 benefits are $4,000 and $1,300 respectively. How do the deeming rules apply in this situation? Thanks, Amit

Hi Amit, Your wife would technically be deemed to be applying for spousal benefits when she applies for her own benefits, but it really wouldn’t matter since she’ll be above full retirement age (FRA) by the time you start drawing your benefits. Your wife will first be eligible for spousal benefits when you claim your benefits, and she’ll need to file a separate application for spousal benefits at that time.

More importantly, if your figures are accurate, your wife would likely be better off claiming her own benefits at FRA as opposed to waiting until 70. If her FRA rate is $1,000 and her age 70 rate would be $1,300, she’d collect much more by the time she becomes eligible for spousal benefits if she starts drawing her benefits at FRA.

And if 50% of your primary insurance amount (PIA) will be higher than your wife’s benefit at 70, her combined rate once she starts drawing spousal benefits would be the same whether she starts drawing her own benefits at FRA or at 70.

It sounds like you and your wife might want to consider using my company’s software — Maximize My Social Security or MaxiFi Planner — to fully analyze the options available to you in order to determine your best strategy for maximizing your benefits. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry

If You Die Before Claiming Retirement Benefits, How Would Your Surviving Spouse’s Benefit Rate Be Calculated?

Hi Larry, If you die before claiming retirement benefits, how would the survivor retirement benefit be calculated? Assuming the surviving spouse had no other benefits and claimed at the survivor’s full retirement age. Would it be based on the full retirement age benefit of their late spouse? Or would it be based on the maximum benefit at age 70? Thanks, Marty

Hi Marty, The answer to your question depends on how old the deceased worker was at the time of death. If the worker dies at full retirement age (FRA) or earlier and without having claimed benefits, the unreduced surviving spousal rate would be equal to 100% of the worker’s primary insurance amount (PIA)

If the worker dies at age 70 or later and without having claimed benefits, the unreduced surviving spousal rate would be equal to 100% of the worker’s age 70 rate inclusive of the delayed retirement credits (DRC) earned by the worker.

If the worker dies between full retirement age (FRA) and age 70, the unreduced surviving spousal rate would be equal to 100% of the amount that the worker would have been due if they’d be eligible to collect in the month of their death.

In other words, the unreduced surviving spousal rate would then include all DRCs earned by the worker up to the time of their death, but not any DRCs that they could have potentially earned after their death. Best, Larry

How Is This Legal?

Hi Larry, I am a retired federal worker with a pension. My spouse died at 69 and was drawing a Social Security retirement benefit of roughly $1,800 monthly. I was denied spousal benefits based on my pension. Additionally, I was denied a Social Security retirement benefit based on my own record. They said I couldn’t double dip. How is this legal? Thanks, Candice

Hi Candice, I’m sorry for your loss. Back in the 1980s, Congress added the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) provision into the Social Security law. It’s legal because Congress has the authority to amend the Social Security law.

The WEP provision only affects Social Security retirement and disability benefits payable based on a person’s own Social Security covered earnings. The WEP can cause a person’s Social Security benefit to be lower if they receive a pension based on their earnings that were exempt from Social Security taxes, but it never reduces their benefit rate to zero. So if you’ve been denied Social Security retirement benefits based on your own earnings, you must have fewer than 40 quarters of Social Security covered work.

The GPO provision only affects auxiliary and survivor benefits (e.g. spousal, widow). It states that if a person receives a pension from governmental work in the US based on their earnings that were exempt from Social Security taxes, their Social Security auxiliary or survivor benefit is offset by 2/3rds of the amount of their government pension. So if the government pension is at least 1.5 times as much as their Social Security auxiliary or survivor benefit amount, their payment amount is reduced to zero. Best, Larry