Conversion from survivor to own benefits

[Sandy & Shirley]

Shirley is about to retire on her late husband’s survivor benefits and will convert to her own benefits at age 70. This will happen in May of that year and the way it was explained by our Social Security office can create a small tax problem.

The following chart is her actual expected benefits multiplied by a factor to make them private and are also adjusted by an estimated 1.25% annual COLA.

SSB	Age	Should Be
$16,433	62
$17,926	69
$18,151	70	$26,905
$42,325	71	$33,571
$33,991	72
$34,416	73

We were told that her conversion to her own benefits had to wait until January of the following year and that she would then receive the difference for the last 7 months of the actual year she turned 70 as a retroactive amount added to the following year.

As the chart shows, her age 70 benefits will be all 12 months as if she was on survivor benefits the entire year, then age 71 will be her own benefits plus the retroactive, and from 72 on just her own benefits. The “Should Be” column shows what we estimate her benefits would be if they actually changed her benefits when she turned 70 and not the following January.

The $42,325 benefits at age 71 will push her into higher tax brackets and cost her money! Plus we have to wait for the extra income!

Does anyone know if this is correct? Can she apply and start her own benefits when she actually turns 70 and not wait till the following year?

[pb4uski]

I don't know but I would keep pushing until someone can show you something in writing that the conversion cannot happen until January 1 of the following year.... it doesn't make sense to me.

One small additional consideration might be that the tax brackets will increase with inflation so that will mute the impact slightly.

[Sunset]

If this cannot be changed, is there some stock tax loss or medical/dental expenses she could plan to have to off-set the increase at that time ?

[Sandy & Shirley]

Quote:

Originally Posted by pb4uski I don't know but I would keep pushing until someone can show you something in writing that the conversion cannot happen until January 1 of the following year.... it doesn't make sense to me. One small additional consideration might be that the tax brackets will increase with inflation so that will mute the impact slightly.

We have taken the bracket increases into account, but of course whatever happens with the new proposed tax changes, or any that happen in the next 8 years will have a definate effect.

Quote:

Originally Posted by Sunset If this cannot be changed, is there some stock tax loss or medical/dental expenses she could plan to have to off-set the increase at that time ?

The problem is that we will be living off of our current Traditional IRAs and Roths until she starts her larger benefits. That is also the year that our mortgage will be paid off, very little interest the last year, so our expenses will go down considerably and we will then be able to save money instead of spending savings.

[Dreamer]

Quote:

Originally Posted by pb4uski I don't know but I would keep pushing until someone can show you something in writing that the conversion cannot happen until January 1 of the following year.... it doesn't make sense to me.

This does not sound correct to me either, but I can't find anything regarding this. I would want them to show me in writing.

[Hermit]

Quote:

Originally Posted by Sandy & Shirley Shirley is about to retire on her late husband’s survivor benefits and will convert to her own benefits at age 70. This will happen in May of that year and the way it was explained by our Social Security office can create a small tax problem. The following chart is her actual expected benefits multiplied by a factor to make them private and are also adjusted by an estimated 1.25% annual COLA. SSB Age Should Be $16,433 62   $17,926 69   $18,151 70 $26,905 $42,325 71 $33,571 $33,991 72   $34,416 73   We were told that her conversion to her own benefits had to wait until January of the following year and that she would then receive the difference for the last 7 months of the actual year she turned 70 as a retroactive amount added to the following year. As the chart shows, her age 70 benefits will be all 12 months as if she was on survivor benefits the entire year, then age 71 will be her own benefits plus the retroactive, and from 72 on just her own benefits. The “Should Be” column shows what we estimate her benefits would be if they actually changed her benefits when she turned 70 and not the following January. The $42,325 benefits at age 71 will push her into higher tax brackets and cost her money! Plus we have to wait for the extra income! Does anyone know if this is correct? Can she apply and start her own benefits when she actually turns 70 and not wait till the following year?

I will be in the same situation when I turn 70. I vaguely remember something like this. From the Social Security pamphlet titled "What You Need to Know When You Get Retirement or Survivors Benefits", EN-05-10077.pdf:

Quote:

Retirement benefits for widows or widowers You can switch to retirement benefits based on your own work if they’re higher than those you receive for your deceased spouse’s work. These benefits may be higher as early as age 62 or possibly as late as age 70. The rules are complex and vary depending on your situation. If you haven’t talked with a Social Security representative about retirement benefits (or your circumstances have changed), contact your local Social Security office to discuss the choices available to you.

Sorry I couldn't be of any more help. Maybe someone else will know where to find the specific rules.

[Blue Collar Guy]

Quote:

Originally Posted by Sandy & Shirley Shirley is about to retire....?

How did you get the font so big? Its the only post I can read without my glasses?

[Hermit]

Quote:

Originally Posted by Blue Collar Guy How did you get the font so big? Its the only post I can read without my glasses?

I use a 24" monitor. You can set the monitor to a lower resolution.

[Sandy & Shirley]

I just found the following article:

https://www.msn.com/en-us/money/reti...ted/ar-AAmOH3v

Why Your First Social Security Check May Be Smaller Than Expected

Not exactly sure where this quote is taken from but it states that:

Every month after full retirement age that you postpone receiving benefits earns you a credit of 2/3 of 1% of your benefit. That works out to the 8%-a-year boost that you hear so much about. The credits begin the month you hit full retirement age and end no later than the month before you hit age 70…

Let's say you decide at age 68 to take your benefit, cashing in on 16% in earned delayed credits. If your full benefit is $2,000 a month, you might expect your first check to be worth $2,320 (plus annual cost-of-living adjustments). But it won't be.

Cutting your delay short means some of your credits won't kick in until later. The credits aren't built into benefits until the January after the credits are earned, if you claim before age 70.

This might make the situation better than expected. She will not get her survivor benefits for the last 7 months of the year. Instead, it sounds like, she will get her own benefits at the level she would have gotten them if she filed in January, not May. Only the difference between age 69 & 7 month check and her age 70 check will be missing and held until the next year.

The difference between survivor and age 70 would be thousands of dollars as shown above. The difference between 69 & 7 months and 70 will only be 1 thousand at the most, something we can live with, if that is the way it will happen. After all, we are dealing with the Government on this, so who knows what will happen!

The quote also says “if you claim before age 70”, so maybe everything will go as planned.

[athena53]

Thanks- this is a perfect illustration of how complicated SS can be, even for people who plan ahead and do research. I'm in the same situation (collecting Survivor benefits, will file for my own at age 70) but I'm 64 now so a lot can change in the meantime.

[medtech]

I just found this quote by Larry Kotlikoff in the following article:

What Social Security's Survivors Planner won't tell you about taking widows benefits | PBS NewsHour

Question: If my full retirement age is age 66 and I delay beginning benefits, it is my understanding that the benefit increases 8 percent per year up to age 70. Is this increase factored in on an annual basis or on a pro-rata per month basis?

Larry Kotlikoff: It’s a pro-rate monthly basis. But you have to wait until January 1 of the next year to receive this year’s delayed retirement credits. This means that if you forgo benefits in January and start them up again in February, you’ll need to wait for 11 months to collect a higher monthly check. But if you forgo benefits in December and start them up again in January, you’ll get a higher check in January. Yet another nasty Social Security gotcha!

[Hermit]

Quote:

Originally Posted by Sandy & Shirley I just found the following article: https://www.msn.com/en-us/money/reti...ted/ar-AAmOH3v Why Your First Social Security Check May Be Smaller Than Expected Not exactly sure where this quote is taken from but it states that: Every month after full retirement age that you postpone receiving benefits earns you a credit of 2/3 of 1% of your benefit. That works out to the 8%-a-year boost that you hear so much about. The credits begin the month you hit full retirement age and end no later than the month before you hit age 70… Let's say you decide at age 68 to take your benefit, cashing in on 16% in earned delayed credits. If your full benefit is $2,000 a month, you might expect your first check to be worth $2,320 (plus annual cost-of-living adjustments). But it won't be. Cutting your delay short means some of your credits won't kick in until later. The credits aren't built into benefits until the January after the credits are earned, if you claim before age 70. This might make the situation better than expected. She will not get her survivor benefits for the last 7 months of the year. Instead, it sounds like, she will get her own benefits at the level she would have gotten them if she filed in January, not May. Only the difference between age 69 & 7 month check and her age 70 check will be missing and held until the next year. The difference between survivor and age 70 would be thousands of dollars as shown above. The difference between 69 & 7 months and 70 will only be 1 thousand at the most, something we can live with, if that is the way it will happen. After all, we are dealing with the Government on this, so who knows what will happen! The quote also says “if you claim before age 70”, so maybe everything will go as planned.

I think you are getting close to what actually happens. I think I didn't pay a lot of attention because all was supposed to work out if you claimed at 70. The only thing mentioned in my financial plan document is that I am supposed to notify the SSA in November that I intend to start claiming on my own account the following February when I turn 70.

[Sandy & Shirley]

What is the most interesting thing here is that there are reasonable explanations of how this works on the PBS and MSN websites, but I can’t find anything on the SSA website!

[gayl]

Quote:

Originally Posted by Sandy & Shirley The $42,325 benefits at age 71 will push her into higher tax brackets and cost her money!

Don't you just mean that her marginal tax bracket will go up? Won't she actually be dollars ahead by doing this? If however you truly mean that she will have less dollars in her pocket at the end of the month then if she did absolutely nothing, then don't do it. FWIW: I've always assumed that as I make more money, my tax will go up but I will wind up ahead net-wise. It's never bothered me

[Hermit]

Quote:

Originally Posted by gayl Don't you just mean that her marginal tax bracket will go up? Won't she actually be dollars ahead by doing this? If however you truly mean that she will have less dollars in her pocket at the end of the month then if she did absolutely nothing, then don't do it. FWIW: I've always assumed that as I make more money, my tax will go up but I will wind up ahead net-wise. It's never bothered me

It might also kick them into a higher cost for Medicare.

[gayl]

Got it .... forgot about Medicare B. Yes, that could almost dbl (amts for joint returns):
Under $170,000 = $134
$170,000 to $214,000 = $187.50
$214,000 to $320,000 = $267.90

[Sandy & Shirley]

Quote:

Originally Posted by gayl Don't you just mean that her marginal tax bracket will go up? Won't she actually be dollars ahead by doing this? If however you truly mean that she will have less dollars in her pocket at the end of the month then if she did absolutely nothing, then don't do it. FWIW: I've always assumed that as I make more money, my tax will go up but I will wind up ahead net-wise. It's never bothered me

Yes I do mean that her marginal tax rate will go up. The bottom line is that her gross income over the two year will be the same, but by paying her less in year 1 and giving her more in year two, the extra money in year two will be taxed in the 46.25% marginal tax rate, 25% of 185% with the 85% taxability of her benefits, vs the 27.75% marginal tax rate, 15% of 185% with the 85% taxability of her benefits. For every $100 that is pushed forward we will pay the Feds an extra $18.50. Heck, we can each buy a coffee for that!

[Sunset]

Quote:

Originally Posted by Blue Collar Guy How did you get the font so big? Its the only post I can read without my glasses?

I noticed this also... it is controlled when you enter the wording , beside the font type.

[MissMolly]

Or hold down your control key and roll up on the wheel of your mouse.

[pb4uski]

Could she avoid this wierdness by claiming SS based on her own work record effective January 1 rather than waiting until May? She would lose out on 5 months of growth at 8% per annum (3.33%) but I "think" would avoid the tax problem.