Personal finance Q&A: Deciding when to start Social Security benefits

Money Talk
Calculators designed to evaluate Social Security strategies aren't all equal. The free ones tend to be simpler

Dear Liz: I am 63 and my husband is almost 64. He lost his job last year. We have been living on his $1,500 monthly pension plus what I could make from small contracts and drawing down our emergency fund. The fund and the contracts are now gone. We would like to get jobs, but we live in an isolated area and must sell our house first so we can move. It's worth about $350,000 with no mortgage, but selling it could take a while.

My question: Is it better to pull from our retirement investments of $750,000, use our home equity line of credit until we sell our house or have me file for early Social Security benefits? We plan to have my husband wait to apply until his full retirement age and then file a restricted application so he gets only spousal benefits until age 70, when his own benefit maxes out. Meanwhile, we need money to live on. I ran a Social Security calculator, and it seemed to say the difference between my starting early and the maximum we could get for waiting was $35,000. Our financial advisor says to take Social Security, but he also manages our investments. We pay him 1% of our portfolio, so reducing it would reduce his income. Can you offer any guidance?

Answer: The benefit from delaying the start of your Social Security benefits is typically so great that knowledgeable financial planners would suggest tapping other funds, including your retirement account, if that's the only way you can hold off.

If you followed the 4% rule for sustainable withdrawals, you could take $30,000 from your retirement fund the first year without having to worry too much about running out of money. You could take more, of course, and plan to cut back when the Social Security checks start flowing, but you run the risk of a downturn dramatically increasing the chances that you won't have enough money to last your lifetimes.

Of course, everybody's situation is different. If the gap between your strategy and maximum benefits is just $35,000 over your lifetimes, you'll have to decide if that's incentive enough to wait. Understand, though, that calculators designed to evaluate Social Security strategies aren't all equal. The free ones tend to be simpler, while the ones that require a fee (typically $40) are more sophisticated and allow you to take more factors into account.

So here's a game plan. Run one or more of the more sophisticated calculators such as MaximizeMySocialSecurity.com, SocialSecuritySolutions.com and SocialSecurityChoices.com. Then take the results to a fee-only financial planner who charges by the hour to get another opinion. You want a planner who uses Social Security maximizing software and who has received education in Social Security planning strategies (just ask). If you can't find someone locally, there are plenty of good planners willing to consult long-distance via phone and email. You can get referrals from Garrett Planning Network, among other sources.

Is spouse liable for medical bills?

Dear Liz: You recently answered a question about whether one spouse can be held responsible for the other's credit card debt. My husband and I are separated and he recently was diagnosed with cancer. He is unemployed with no health insurance and high hospital bills and back child support payments. In the event of his death, will I be liable for his debts?

Answer: You need to talk to an attorney to determine your liability for his medical bills, since it depends on state law. Some states don't hold spouses liable for these bills if they're legally separated, while others do. In any case, his estate will still owe the unpaid child support, and child support typically has a higher priority for payment than most other creditor's claims when an estate is settled. In general, creditors have to be paid before the rest of the assets can be distributed to heirs.

Survivor benefits for same-sex couples

Dear Liz: Your answer to the reader asking about Social Security survivor benefits for same-sex couples was incomplete. If the person was a registered domestic partner in a state that did not allow them to marry, they still qualify for spousal death benefits. Please tell those affected so they know they should apply ASAP.

Answer: Thanks for pointing that out. Social Security survivor benefits are available to legally married same-sex couples whose marriage is recognized by the state where the couple was living at the time of the spouse's death (assuming the deceased spouse meets all other qualifications for benefits). If the state where the couple lived doesn't recognize same-sex marriages, a surviving partner may still qualify as a widow or widower for Social Security benefits if the intestacy laws of that state allow the surviving partner of a non-marital legal relationship (such as a civil union or domestic partnership) to inherit as a spouse.

Questions may be sent to Liz Weston, 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the "Contact" form at asklizweston.com. Distributed by No More Red Inc.

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