Episode 94 – Maximize Your Social Security Benefits with guest Kathleen Sindell, PhD

Episode: 94
Originally Aired: September 6, 2014
Topic: Maximize Your Social Security Benefits with guest Kathleen Sindell, PhD

The Lange Money Hour: Where Smart Money Talks
James Lange, CPA/Attorney
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Maximize Your Social Security Benefits
James Lange, CPA/Attorney
Guest: Kathleen Sindell, PhD
Episode 94

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TOPICS COVERED:

1. Introduction of Guest – Kathleen Sindell, PhD
2. Delay Taking Social Security
3. Social Security Will Probably Continue
4. Take Advantage of Apply and Suspend
5. Caller Q&A: Spousal Benefits with Social Security

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1. Introduction of Guest – Kathleen Sindell, PhD

David Bear:  Hello, and welcome to this edition of The Lange Money Hour, Where Smart Money Talks.  I’m David Bear, here in the KQV studios with James Lange, CPA/Attorney and author of two best-selling books, “Retire Secure!” and “The Roth Revolution: Pay Taxes Once and Never Again.”  Social Security is a component of most retirement plans, but not everyone receives the same benefit.  Retirees who are in the know adopt cutting edge strategies that can make a huge difference in the benefits available to them, their spouses and their heirs.  What can you do to increase your Social Security benefits?  On tonight’s show, CPA and Attorney Jim Lange welcomes Dr. Kathleen Sindell, author of the best-selling book, “Social Security: Maximize Your Benefits.”  With more than twenty years writing about financial management, she is currently a professor at the University of Maryland in the UMUC Graduate School, as well as a regular financial expert on ABC World News and The Nightly Business Report.  She and Jim will discuss unique and effective strategies to increase your retirement benefits, incorporating Social Security maximization techniques, and Roth IRA conversions.  Stay tuned for an interesting and informative hour, and listeners, since our show is live, Jim and Dr. Sindell are available to answer your questions.  To join the conversation, call the KQV studios at (412) 333-9385.  And with that, I’ll say hello, Jim and welcome, Dr. Sindell.

Kathleen Sindell:  Hello.

Jim Lange:  Hi, welcome Kathleen.  If I can call you Kathleen, if that’s okay?

Kathleen:  Yes, it is.

2. Delay Taking Social Security

Jim:  All right, and congratulations on a great book.  The book, by the way, is “Social Security: Maximize Your Benefits,” that is both very valuable and mercifully short for a college professor!  But anyway, there’s a lot of things that I want to talk about today, but is it fair to say that, as a general rule, that you typically would recommend people delay Social Security rather than take it early, for most people?

Kathleen:  Yes.

Jim:  All right.  I wanted to get that out in case, you know, some people are in the car, and I have so many people who want to take Social Security at 62 years old, and I’m usually fighting with them, and it’s not the most pleasant argument because it’s hard to tell people to not take money when they could, and, you know, particularly, if somebody’s working.  So, let’s take the case of somebody who is working.  How does work affect Social Security?

Kathleen:  Well, if you apply for Social Security before your full retirement age, your FRA, then you could only earn $15,120 per year before you have to pay taxes on that, and the tax penalty is for every dollar, for every…well, the taxman will deduct one dollar and benefit from every two dollars you earn over that $15,120.  So, not only do you take a deduction of 25%, if you have a benefit…let’s say your full retirement age benefit is $1,000 per month.  If you take that benefit early, you’ll only get $750 per month, and that is forever.  That’s locked in forever.  When you turn full retirement age, it will not increase.  When you turn seventy, it will not increase.  You will always get that $750 per month.  If you work, if something happens where you actually have to go back to work and you earn over $15,120 per year, then you will have this deduction in benefits of one dollar per every ten earned, over $15,120.  So, not only do you get hit once, you get hit twice.

David:  That’s in addition to normal income tax?

Kathleen:  Yes.  And if you happen to have to file unemployment, then Social Security doesn’t penalize your benefit for those unemployment benefits, but it could be that the state’s unemployment benefit office will give you less of an unemployment benefit because you receive Social Security benefits.  And now, that varies state by state.

Jim:  How about if we simplify it for the listeners?  This is the way I think about it: if you’re making more than $15,000, you don’t even think about collecting Social Security unless you absolutely desperately need the money to just make rent.  Is that a fair summary?

Kathleen:  That’s a fair summary.

Jim:  All right.  That’s my big thing because, you know, it’s interesting.  I just went to a Pennsylvania Bar Institute continuing education, and they had a Social Security expert, and this person was saying he often has a lot of clients…now, to be fair, his clients are, let’s say, not very well to do.  He has a lot of clients who he claims have to take Social Security early in order just to pay bills, and I’m thinking, “You know, in general, the way the math works, you know, with the extra 8% raise for every year that you wait, and it’s not just for your life, but, a lot of times, you’re waiting to get a higher benefit for your spousal benefit.”  So, I mean, I even have clients who, let’s say, are in bad health and they say, “Hey, Jim, you know, I’m in bad health.  I might as well get as much as I can,” and I’m thinking, “Well, yeah.  But then, if you die early and you reduce your benefit because you took it too soon, and then you die, and then your wife will have lower benefits for the rest of her life.  And my general contention, before we get into some of the numbers, and I do have more detailed question for you, but my general contention is even if you have to eat into savings, even if you have to eat into your IRA, which I really hate, in general, unless both you and your spouse are not going to be around for a long time, it often makes sense to wait.  Is that fair?

Kathleen:  Yes.  Yes, absolutely.  There are some guidelines that are in the book about what is the right application date for you based on your general health, the longevity of your family, and things on that order, but generally, if you are in good health and there is longevity in your family, you know, in other words, you don’t expect to pass away when you’re 65 years old.  Then you certainly should not retire, you know, and take the benefit when you’re 62.

Jim:  Well, Kathleen, I’ll tell you what I did.  I’m going to talk a little bit more later on about the combination of, or I should say, the synergy of Social Security and the timing of Roth IRA conversions.  And I’m actually doing a talk on where that’s going to be one of the major topics, actually, this Saturday in Monroeville.  But what I did was I said, “Okay, let’s say that you take money at age 62.  And to compare apples to apples, I’m going to collect Social Security at 62, and then, I’m going to reinvest it.”  And then, I compared that to somebody who was taking Social Security at 70, and obviously, the person who took the money at 62 is much better off in the early years, and the breakeven point, that is, the point when it makes sense to wait, is somewhere around maybe age 83 depending on interest rates.  I use about 6%.  But if you keep going longer on…so let’s say you make it to age 90.  You know, I have that you’re better off by about $240,000, and what Larry Kotlikoff said, I don’t know if you know Larry.  He’s actually a professor at the University of Boston, and he’s done work in this area.  And I told him about this similar analysis, about breakeven at 84, and this was his response: he said, “Lange, quit thinking like an actuary!  Think like an economist!  If you die when you’re 76 or 78, you’re dead!  You don’t have a financial problem!  Your financial problems are not if you die, but if you survive, and if you run out of money in your older age!”  So, thinking of it like an economist instead of an actuary, the bet (even without getting into all the numbers) is you’re better off waiting because it protects you from everybody’s fear, which is running out of money when they’re old, not trying to squeeze the last dollar.  Although, I would argue that waiting will often squeeze the last dollar, and I don’t know if you think that that’s a fair analysis or not, also.

Kathleen:  I think that waiting as long as you can to apply for Social Security is definitely the way to go, especially for survivors, you know, there are statistics that indicate that…or for women who are in their nineties, that 42% of them, that the only income they have is Social Security.  So, that means that the survivor benefit needs to be as large as possible.

Jim:  Well, it’s interesting.  I actually have two programs for financial professionals.  One, by the way, I believe that you spoke on the panel today with, a guy named Frank, is it Worthy or Whorley or something like that?  Anyway, he also agrees that you’re better off waiting.  About two days ago, I subscribed to a journal called The Journal of Personal Finance, and a guy named David Blanchett wrote an article, “When to Claim Social Security,” and I’ll give you the summary that he came up with.  Now, it took him about forty pages of analysis to come up with this, but this is his analysis: the results of this analysis suggest most retirees would be best served delaying Social Security benefits until at least full retirement age or later, and that delayed Social Security are especially valuable for females, married couples, retirees who expect to invest in relatively conservative portfolios during retirement, and retirees who have longer life expectancies.  Here, this is interesting, the effective return achieved from a retiree making the optimal Social Security decision can significantly exceed the return he or she could earn by investing the monies received from starting benefits earlier and investing the difference, especially in today’s low-interest environment.  We find the optimal Social Security claiming decision can generate 9.15% more income for a hypothetical retired married couple which creates an annual equivalent of about three-quarters of one percent per year.  So, this is really a big difference, and I think it’s really important for women…in fact, actually, both of these programs really want to talk to women about the topic of when to collect Social Security.  I’d like to keep going.  David is waving his arms.

3. Social Security Will Probably Continue

David:  I just have a question, and I understand the logic behind all of these calculations, but how do issues like the long-term viability of Social Security weigh into this?  I mean, is that an issue that one needs to consider?

Jim:  I’m going to let Kathleen answer that one.

Kathleen:  From the literature that I’m reading, it seems that for the near term that we are safe, even though it says that, you know, even though we’re getting different forecasts, we get a different forecast from the Social Security Administration every year or two that says, “Well, you know, the end is near, and the end’s going to be 2035 (which has been the most recent prediction), but I can’t help but believe that because of the Social Security program being such a safety net for so many people, that something’s going to happen, that we will see it for many years, and that for people who are in their twenties now, or thirties, that they may have a different type of Social Security.  It may be a pre-paid Social Security, benefit that’s different than what we have now, but I think that Social Security will not disappear.

David:  Good.

Jim:  And I actually agree with you that there’s going to be a difference between people who are, let’s say, either collecting now or about to collect in the next couple years, and perhaps people in their twenties and thirties, or maybe even forties.  On the other hand, every time I’ve made a global prediction about what the government’s going to do, I’ve often been wrong, so…  But frankly, I would bet, and I would take the extra 9% rather than worrying about the government not fulfilling its obligations…

David:  Perpetuity, you know.

Jim:  Well, the other thing is, I think politically it would just be unfeasible for the government to significantly cut benefits that people fully expected to have.  So, I think part of it is a political issue, also.

David:  Well, moving on.

Jim:  All right.  And the other benefit of holding off on Social Security is that there are significant tax advantages of holding off on Social Security, and the most current area of research and…I call it number crunching, that I’ve been doing, is holding off on Social Security, getting a very low base income.  So, let’s even say somebody who’s 62 years old, they’re retired, they have money in their IRA, maybe they have some money that they’re living off, my thing for them is hold off on Social Security, and then start doing a series of Roth IRA conversions, and you can do a lot more Roth IRA conversions if you’re holding off on Social Security.  So, let’s say you’re not taking Social Security, you might be able to do about an $86,000 Roth IRA conversion and still be in the 15% bracket, where, if you are taking Social Security, what happens is the additional income from the Roth IRA conversion will increase the taxation of the Social Security.  So, to stay in the 15% bracket, you can’t go any higher than $19,500.  So, there is additional…or if you’re not a Roth IRA conversion fan, you could actually just take money out of your IRA, even at the 15% rate.  Although, personally, I’d prefer you do a Roth IRA conversion, and I think a lot of people don’t understand that and they don’t even take that into consideration in their decision of when to take Social Security.  I don’t know if you ever…well, actually, your book does have some analysis, and then the other thing…and I think David’s going to want to take a break fairly soon…well, do we have time to talk about apply and suspend, because that’s a tough one?

4. Take Advantage of Apply And Suspend

David:  Well, you know, we can…let’s start and see where it gets us.

Jim:  All right.  Kathleen, I thought that your book did a very good job of not only explaining the basics, but some of the more subtle points of apply and suspend, which is just such a wonderful, wonderful technique, and I have to admit, Kathleen, I actually learned about apply and suspend live on the radio when we were talking with Larry Kotlikoff, and he explained it, and since then, I have written about it and I’ve been quoted on it, but I thought you did a really nice job in your book talking about it.  So, maybe I’ll ask you to describe for our listeners the apply and suspend technique and who that would be appropriate for?

Kathleen:  Well, the apply and suspend technique is appropriate for a couple where…you have to be a married couple, where there is a high earner and preferably a low earner, and what happens is that, let’s say, for example, they’re both full retirement age, and what happens is the high earner applies for Social Security retirement benefits, and then immediately suspends his application.  He continues to…I’m just saying generic, you know, it could be he or she…

Jim:  Sure.

Kathleen:  He continues to work.  What this does is allow the spouse to apply for spousal benefits.  So, during the 66 to 70-year old time period, every year, the high earner’s spouse works, he adds 8% to his full retirement age benefit.  So, by the time he’s 70 years old, he gets 132% of his full retirement age benefit.  In the meantime, his spouse has collected half of his full retirement age benefit for this four-year period.  Now, one of the things that I need to point out here (and it is in the book, David, in a little box) is that what the high earner spouse has done is that he has a crude delayed retirement credits of 8% per year.  Her spousal benefit will always remain the same.  It will always be 50% of his full retirement age benefit.  But, what happens is really key with this, is that as time goes on, and let’s say that after 70 years, the high earner retires, he gets 132% of his full retirement age benefit, she gets 50% of his full retirement age benefit, and let’s say, somewhere down the road, he passes away.  She now gets 100% of his benefit.

David:  Umm-hmm.

Kathleen:  And that’s going to be 132% of his full retirement age benefit.  And so, that’s where, in my opinion, the strategy really shines.  And that is, is that she will have a much larger amount of money to live on…

David:  To live on.

Kathleen:  Right, than if he had not participated in this particular claiming strategy.

David:  Well, actually, you know, we have a question from a listener on this very subject, which we’ll get to after our break.

BREAK ONE

David:  And welcome back to The Lange Money Hour.  I’m David Bear here with Jim Lange and Dr. Kathleen Sindell.  Listeners, you can join the conversation.  Call KQV at (412) 333-9385, and Jim?

Jim:  This is Jim Lange.  The book, by the way, is “Social Security: Maximize Your Benefits,” by Kathleen Sindell.  Kathleen, you had a little description of apply and suspend right before the break, and you said something about the husband could continue working, but wouldn’t everything that you said apply even if the husband was retired, or if the independent spouse was retired and not working?

Kathleen:  Well, apply & suspend, yes!  He doesn’t necessarily have to work, but if he does work, he gets two benefits: number one is that if he applies and suspends, he gets the automatic 8% increase, but if he’s working, he has an opportunity to also bump the base of his full retirement age benefit based on the number of units he has for highest earning.  So, let’s say, in the last four years that he worked.  He has blockbuster years, and he could have his full retirement age.  His benefit is up because of these extra four years, because what happens is is that Social Security looks at your 35 top earning years, and so back in the 1950s and 1960s, the ceiling for FICA was $6,000 or $8,000.  You know, today, it’s over $100,000.  What would happen is that in fact, it’s one of…or, you know, four of those years were included in your top earning years, that those would go away, and the top earning years that you just accrued would be put in its place.  And so, that would add to the benefit that you would get at the time you’re 70.

David: I mentioned before the break that we do have actually a question that a listener has e-mailed in, and I’ll read it to you, and it’s on the subject, so we can respond to that.  The question is from Ron, and he says, “My wife and I are both 65 and have signed up for Medicare, but have not yet for Social Security.  She will reach our full retirement age of 66 at mid-year 2013, and I will be 66 at the end of this year.  She doesn’t have enough work credits to file for her own record, and she would like to file as my spouse on my record.  I’m thinking of waiting until age 67, or possibly later, to start receiving monthly Social Security.  Question one: do I understand correctly that I should file and suspend for Social Security at age 66 so that she could start receiving her maximum full spousal benefit at that point, and two: would her waiting to file for spousal benefits until I reach age 66, assure that she would get the maximum possible monthly benefits, and three: if I file and suspend at age 66, does that change anything for calculating my monthly benefit, when I do start receiving benefits at age 67 or later.  It seems this is exactly what we’re talking about.

Michelle:  Yes.  You know, for file and suspend to work, you have to be full retirement age, and so…

Jim:  Right, which, by the way, you’ve mentioned that a couple of times, and in your book, you have a table on that, but is it fair to say that for people who are turning 66 now, that’s the full retirement age.  Or, technically, I guess, 66 2/3%.  Is that right?

Kathleen:  Yes.

Jim:  Okay.

Kathleen:  You know, it’s the baby boomers, and so for…if you go to the Social Security website, and you read their literature, you know, when they say “Full retirement age,” they’re generally referring to people who are 66 because that’s the age that we’re at right now for most people, and will be at this age, and we’ll be at this age for a while, and then, what will happen in a little while…well, after this time is that we’ll seek full retirement age B, age 67, and then, at that point, when people went the legal full-retirement age of 67, and if somebody applies for early retirement instead of it being a 25% reduction of the full retirement age benefit.  It will be 30%.

David:  Um-hmm.

Kathleen:  So, the way the laws are written right now, it’s sort of a moving target, and changes.

Jim:  Okay, well, let’s get back to Ron and his apply and suspend.  What do you think that he should do?  And even if you don’t do the exact month-by-month calculation, does this sound like the ideal situation where he should apply for Social Security, not collect anything, and then this is actually at her full retirement age.  So in other words, when she turns 66, that she applies for a spousal benefit, then…

Kathleen:  Only, a spousal benefit only.

Jim:  Right.  She applies for a spousal benefit only.  Let’s say, for discussion’s sake, that she gets, maybe, $15,000 a year.  She can get that for, let’s say, four years until she turns 70.  So, potentially close to an extra $60,000, and as I understand that, that will not hurt his benefit when he turns 70 at all.  It would be just as if he had collected nothing, and then she can collect when she’s 70, and that $50,000 that she collected would be as if she had collected nothing.  So, basically, this technique is like an extra $50,000 for people who know about it, and that doesn’t even include the benefits of the higher Social Security that they’ll be receiving for the rest of both of their lives.

Kathleen:  Yes.  You know, if he files a file and (I’m going to get a little complicated here), if he does a file and suspend, that’s #66, and then she, at 66, does a spousal benefits only restricted application, she can, at 70, apply for her own benefits.

Jim:  Right, and I think that that’s such an interesting idea.  Now, here’s the other thing (we don’t have Ron, so I can’t ask him), but let’s assume, for discussion’s sake, that Ron has some money in his IRA, because, you know, Pittsburgh’s a working town.  We have a lot of people with IRAs and retirement plans.  In fact, that’s what I actually talk about a lot, and I’ll be talking about it actually this Saturday in Monroeville, and one of the sections I added was the integration of when to make Roth IRA conversions and when to take Social Security.  So, the other strategy that I would want Ron to take a look at is doing Roth IRA conversions, maybe up to the top of the 15% bracket, every year during that file and suspend period.  Maybe, depending on…well, he’s already past the stage, but if he had actually started that at age 62, some of the benefits to him would be pretty amazing.  I’ll just take the liberty of giving you a little preview on what we’re going to be talking about on Saturday with apply and suspend.  The analysis that I have is if even just one of them make it to age 86, the combination of waiting for Social Security, doing apply and suspend at full retirement age, and then making strategic Roth IRA conversions, in today’s dollars, the family will be better off by $219,000.  And then, because a lot of my clients, at least people that age, they tend to be savers, not spenders, if they then die and those additional Roth IRAs end up going to their kids, and again, I’m not going to go through all the math on the radio, but the kids are going to be better off by $543,000 in today’s dollars.  So, I see some tremendous benefits to the strategy that you are advocating, which is the apply and suspend, and then I’m just going to take it maybe one step further for Ron and people in the appropriate circumstances, and to say take a look at holding off until full retirement age, do apply and suspend at full retirement age, and then do a series of Roth IRA conversions between, let’s say, retirement and age 70, and your kids can literally be $500,000 better off in today’s dollars.

David:  But you can’t suspend until you’ve reached the full retirement age, and you can’t suspend once you’ve actually started getting benefits, right?

Jim:  First part’s right, the second part, I don’t think is.  I’ll let Kathleen take that one.

Kathleen:  Okay.  There is this way of sort of getting a big paycheck.  Let’s say that somebody does a file and suspend, and something happens, and they decide that they want to do a claw back, and so they can reapply for benefits and they can claw back to when they originally filed.

David:  Umm-hmm.

Kathleen:  And they can push their application date back to the original file date, and they can collect those benefits that they did not collect during that suspend time.

David:  Umm-hmm.

Jim:  But the way I interpreted your question, David, maybe it wasn’t clear, but what I thought the point was, and even if it wasn’t, it’d be an interesting issue, let’s say somebody has already started collecting Social Security, and let’s say they’re hearing now, for the first time, about file and suspend, and they’re going, “Oh my goodness!  That’s what I should’ve done!  Now, I’ve already collected some Social Security,” and here’s the question for you, Kathleen, “Can I stop my Social Security now and suspend it, and if not get the full benefit, at least get part of the benefits of apply and suspend, even though I have taken some Social Security benefits already?”

Kathleen:  Well, you can do that if you’re within the first year, and if you do that, it’s called the reset.

Jim:  Right.

Kathleen:  And what happens is that you notify the Social Security that you want to do a reset, that you want to stop your application, that you do not want benefits any longer, and you have to write them a big check!

David:  You have to pay back what they’ve already given you, basically?

Kathleen:  Yes, you have to give them back everything you have received.  Now, in the past, there is a history to the reset, and the history is that people used to do this on a regular basis, and it was a way to get a free loan.

David:  Umm-hmm.

Kathleen:  And let’s say you have your money invested in a long-term investment that has a high penalty, that if you withdraw, and therefore, you’re cash short, so you could apply for Social Security and then do a reset when you’ve cashed out on this particular long-term investment, and, you know, would pay it off, and then they would do it again.

David:  Right.

Kathleen:  You know, two years later, they would do another reset, and the cost was, you know, in the millions and millions of dollars to the government.  And so, about three years ago, the government said…

David:  They eliminated that reset button.

Kathleen:  Yeah.  Well, it’s a once-in-a-lifetime thing these days.

David:  Right.

Kathleen:  You can do it one time.

David:  And you have to pay back what you’ve got.

Kathleen:  And you pay back what you have, what you received.

Jim:  Yeah, but in the good old days, you could give back years and years of Social Security…

Kathleen:  Yes!

Jim:  …so one of the really interesting strategies is, we used to, for people who had already collected, we’d give a whole bunch back.  And that, by the way, ended up being a tax deduction because they had to pay tax when they got it.  So, we had this big tax deduction.  Then we did a Roth IRA conversion at the same year that we gave it back, so we basically got a free Roth IRA conversion and we increased people’s Social Security.  By the way, I should mention, this sounds like a pretty tough area.  I think your book really helps out.  Again, the book, “Social Security: Maximize Your Benefits.”  I should mention, though, that our office has developed Social Security expertise.  We have purchased actually two software packages, and more importantly, invested time in learning how to use them and helping people maximize their Social Security, and a lot of times, people say, “Well, maybe some of the things you’re talking about work for a lot of people, but what about my situation?”  And I don’t know how much time we’re going to have for divorce issues and for second marriage issues, etc., or even widow or widower issues, but I will just tell you that that is a service that our office prepares.  We do that analysis.  We usually charge $500 to do that.  So, if somebody is overwhelmed and is interested in having somebody professionally run the numbers on what they should do about Social Security, they could contact us and for a flat fee, we will make a determination and a recommendation.

David:  Well, with that, let’s take one more break and talk about other services that you provide!

BREAK TWO

5. Caller Q&A: Spousal Benefits With Social Security

David:  And welcome back to The Lange Money Hour with Jim Lange and Dr. Kathleen Sindell.  Jim?

Jim:  Ron, who actually was the person who e-mailed the question in, the long question that we read, is on the line and I do want to take his call in one minute, but there was one or two points that I wanted to make because if the call runs a long time and the show is up, I don’t want these points to be missed, and Kathleen, I think that you put it well when you said…what was the statistic?  Like 40% of the women who are 90 and older, that is their sole means of support?

Kathleen:  Yes.

Jim:  And even for a wealthier crew, and even for my clients who usually tend to do relatively well, the savings of knowing that a higher amount of money is going to come in every month for the rest of your life and this is my big thing now, the rest of your spouse’s life, is really an important thing.  I mean, even my brother-in-law called me and he said he was very interested in taking Social Security, and he said, well, because of his genetic history, he wasn’t sure how long he was going to live, and he kind of did some calculations and he figured that, gee, based on the break-even point, that he’d probably be better off taking it early, and my big thing was no, no, no, because if you die even early and even at age 80 or some other time before that, it’s critical that your spouse gets a spousal benefit that will be the equivalent of what you received, and if you take it early, you’re reducing not only the amount that you’re getting now, but you’re going to reduce the amount that your spouse is going to get for the rest of her life.  And that can literally be the difference between a surviving spouse being comfortable and not being comfortable.  But anyway, I did want to make that point, and why don’t we let Ron, who apparently isn’t satisfied with our answer, finish the question.  Ron, you’re on the air.  Ron, are you with us?

Ron:  Yes, I am.

Jim:  Alrighty.  Go ahead.  What part of the question was unclear or could we help you with?

Ron:  Okay.  The spousal benefit is to be applied on my record because my spouse doesn’t have enough work credits on her own record.  So, she will only qualify for my record to get benefits.

Jim:  Right.  You’re going to apply and suspend benefits, she’s going to apply as a spousal beneficiary, in effect, and collect half of what you would have collected.

Ron:  Yes, and she has to wait until I reach full retirement age because she reaches full retirement age before me.

Jim:  Right, and if it was the opposite, then you’d have to wait until she was full retirement age.  Is that right, Kathleen?

Kathleen:  Yes, that’s correct.

Jim:  But you have to have both people at full retirement age?

Kathleen:  Well, no, no, you have to have one person who’s at full retirement age, but since your wife doesn’t qualify for Social Security, it has to be you.  So, it’s you who has to be full retirement age and who does the file and suspend.  She, at that time, and if she will be, because of your particular situation, she will be full retirement age.  So, she will automatically get half of what you would be paid at full retirement age for your benefit.  So, what will happen is that you’re not going to get a benefit, but she will get half of whatever benefit you qualify for.  You will continue to work if you so desire, and every year that goes on, you will get an increase of 8% in what’s called the delayed retirement credit.  She will always get half of your full retirement age benefit.  This 8% that you will get per year as an increase will not affect the amount of money she will receive.

Jim:  Now, this doesn’t apply to Ron, but what if she was 62 and he was 66?

Kathleen:  She would get a reduced benefit.  She would get…yeah.

Jim:  All right, so she wouldn’t get half of what he would be eligible for.  Is that right?

Kathleen:  She would get 71.5%

Jim:  I guess you can’t be more specific than that!  Okay, Ron, go ahead.  Finish your question.

Ron:  So then, that if I learned to spend, for me, and her taking benefits doesn’t affect any calculations that Social Security does for me in later years when I begin to take benefits?  Is that correct?

Jim:  Yeah, so earlier, when I did that little discussion of that, you yourself, forgetting your wife, you yourself would be better off by $58,000, that’s kind of like free money, and the fact that she’s collecting on your record doesn’t hurt you, and it would be the same as if you didn’t collect a nickel, and she didn’t collect a nickel, and you started taking it at seventy, and so it didn’t hurt her, it didn’t hurt you.  It’s just an extra $50,000 that the government is going to give you.

David:  And that never hurts!

Jim:  No!  Well, yeah, to me it’s kind of astounding.  It’s almost like a loophole, and on the other hand, frankly, when I see a loophole, instead of trying to close it, I just try to take advantage of it.  In fact, I’d say a fair amount of my career is looking for things that might never have been, let’s say, planned out, or that Congress never really quite understood the power of what they were doing.  So, for example, I don’t think that Congress really got what they were doing when they allowed Roth IRA conversions, and some of the numbers that I was just going through where, if you combine the apply and suspend technique and the right time to take Social Security and the appropriate Roth IRA conversions, that you’d be $211,000 better off in today’s dollars, and your kids would be $500,000 better off in today’s dollars, but if the government is going to let us do that, I don’t see why we shouldn’t, and why we shouldn’t take advantage of everything the government’s willing?  Is that okay with you, Ron, to have your family benefit and the government just has a little bit less money to spend on some of the things that they spend money on?

Ron:  Yeah, that’s good for me.

Jim:  All right.  Did we answer your question, or is there more?

Ron:  Yes, you did answer the question, and I was concerned about something that we haven’t talked about yet, is that I’m thinking when the spousal benefits apply, I am doing partial Roth conversions yearly.

Jim:  Oh, very good, very good.

Ron:  So, the spousal benefits would then have to be considered when I’m calculating the conversion for that year, because that becomes taxable because my conversions would make it taxable?

Jim:  That’s right.  So, what that might end up doing…in fact, I didn’t go through all the details of the calculations that I made, but if you’re trying to make Roth IRA conversions to the top of the 15% bracket, some of the file and suspend income that you get from Social Security is a spousal benefit, or, I should say, your wife gets, will reduce the amount of Roth IRA conversion that you can make if you’re trying to stay in the 15% bracket, which is probably a good strategy for you.

Ron:  Yeah.

Jim:  So actually, Ron, I think you have independently figured out both apply and suspend and the Roth IRA conversion to the top of the 15% bracket, and you get the Larceny of the Heart Award, which is awarded to people who have figured things out for themselves in a way to maximize their own retirement benefit!

David:  Unfortunately, you can’t pick it up for thirty years!  But, you know, we’re getting to the end of the show here, and you know, does anybody else have anything they want to add quickly?  We have thirty seconds, ten seconds…no?  Well…

Jim:  Well, yeah, I do.

David:  Okay.  You always do.

Jim:  Yeah, I always do.  So, in general, I would say hold off taking your Social Security.  The period between when you retire and you take Social Security, consider doing Roth IRA conversions.  When you and your spouse reach full retirement age, consider taking an apply and suspend technique and continue doing Roth IRA conversions, and then, when you’re both seventy, take full retirement, and the combination of doing the apply and suspend, holding off on Social Security and some Roth IRA conversions could mean, in today’s dollars, roughly $200,000 to you and even in today’s dollars, $500,000 to your kids.  And finally, I will mention the book, which I do recommend, “Social Security: Maximize Your Benefits” by Kathleen Sindell.  And thank you so much for being on the show, Kathleen.

Kathleen:  It was my pleasure.

David:  And Ron, thanks to you, and thanks for listening to this edition of The Lange Money Hour, Where Smart Money Talks.  And thanks also to our program coordinator, Amanda Cassidy-Schweinsburg, and also to our in-studio producer, Jason Gruber.  As always, you can hear an encore broadcast of this show at 9:05 this Sunday morning, here on KQV, and you can also access the archive of past shows, including Jim’s chat with Vanguard Group founder John Bogle, on the Lange Financial Group website, www.paytaxeslater.com, along with written transcripts.  Finally, please join us on Wednesday, March 6th at 7:05 for the next edition of The Lange Money Hour when Jim’s guest will be Bill Flanagan, executive vice-president of the Allegheny Conference on Community Development.

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