Dear Liz: I am a teacher, retiring this June. I have my teacher’s pension and will receive a small Social Security benefit as well. I am married and my husband’s Social Security benefits are far greater than mine. Should I start drawing on my Social Security benefits next year when I turn 62, assuming when my husband starts drawing on his when he turns 70 in seven years I will then get a higher benefit? Is there any downside to taking my Social Security benefits for seven years while I wait for him to start taking his?
Answer: Your early start would reduce the future spousal benefit you’ll be eligible for when your husband applies at age 70, says Mary Beth Franklin, a former Investment News columnist and author of “Maximizing Social Security Benefits.” The early start would not, however, reduce your future survivor benefit should your husband die first.
Spousal and survivor benefits are both based on your husband’s work record, but they’re calculated using different rules.
Spousal benefits can be up to 50% of your husband’s benefit at his full retirement age. If you’re already receiving your own benefit, the spousal “top off” adds an additional amount to your check once your husband applies and you’re eligible for a spousal benefit. The top off amount is calculated by subtracting your benefit at full retirement age (FRA) from 50% of your husband’s benefit at full retirement age.
A simplified example may help show the effect of an early start. Let’s suppose your own retirement benefit would be $1,000 a month at age 67 and your husband’s benefit at his full retirement age would be $3,000. Social Security subtracts your FRA benefit ($1,000) from half of his ($1,500) to determine the “top off” amount ($500). If you apply for your own unreduced benefit at age 67, the top off amount would be added once your husband applies for his benefit and triggers a spousal benefit for you.
If you start early, on the other hand, your own benefit would be permanently reduced. Starting at 62 means you’d receive $700 a month. Once your husband applies and the spousal benefit is triggered, you’d get the additional $500, but now you’d be receiving $1,200 a month instead of $1,500 you would get if you’d waited.
That doesn’t mean you should delay, Franklin notes. The additional cash could make it easier for your husband to put off filing. And, as noted above, an early start on your own benefit wouldn’t affect any future survivor benefit.
While spousal benefits are based on your husband’s benefit at full retirement age, survivor benefits are based on what he actually receives (or what he had earned, if he dies before starting benefits). If your husband waits to file until after his full retirement age, his benefit earns 8% annual delayed retirement credits until his benefit maxes out at age 70. As a survivor, you would be eligible to receive up to 100% of that benefit.
Dear Liz: During the 2024 open enrollment period for Medicare, your column mentioned that Part D enrollees’ out-of-pocket payments in 2025 would be limited to $2,000, but only for covered prescriptions. That spurred me to be sure my prescription drug plan covered the one brand name drug I take. It didn’t and I found the only plan in my area that does just in time before the open enrollment period ended.
More recently, I learned from your column that I can pay Medicare premiums from my health savings account. Like many HSA participants, I have been letting my contributions accumulate for later-in-life medical expenses. But now that my husband and I are investigating moving into a continuing care retirement community, it helps to know that we have the option of paying Medicare premiums this way and have more money left over each month after we pay the monthly fee.
Answer: Thanks for sharing those experiences!
It can be easy to leave our finances on automatic, but there are at least two areas where it’s important to shop every year: health insurance and auto insurance. Health insurers constantly change their formularies, or list of covered drugs, as well as what tier a drug might be assigned to. A prescription you get cheaply this year could be more expensive next year or not covered at all. Auto insurers, meanwhile, tend to raise rates on loyal customers because they know many people will stay put out of inertia.
It’s also important to have a plan to eventually spend HSA funds before you die. A spouse can inherit an HSA and retain its tax advantages, but the account becomes taxable if anyone else inherits it.
Liz Weston, Certified Financial Planner, is a personal finance columnist. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.
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