Lynn Brenner's Family Finance

Second Thoughts About Social Security: Can I Suspend My Benefit and Take It Later?

Q: I read your AARP Magazine article on how to boost Social Security benefits. I turned 66 -- my full retirement age -- in June this year. I started collecting my Social Security benefit in July, so I've only received two payments so far. My wife will be 62 in April of 2010. We're both still working full time. If we don't depend on these funds right now, should I suspend my benefit and have my wife apply for spousal benefits based on my record? --BB via email

A: As I explained in that article, and in an earlier post on this blog, delaying your application for Social Security can add thousands of dollars to your retirement income. It can also substantially boost the income of your surviving spouse after you're gone. 

At your full retirement age, voluntary suspension of benefits is one of your options.

If you don't need the money now, and you're in good health, this is a good choice.

You'll gain what the agency calls a Delayed Retirement Credit (DRC) for each month you postpone collecting Social Security until you turn 70. The DRCs add up to 8% a year.

In other words, if you wait until you're 70 to resume collecting your monthly benefit, it will be 32% bigger than it is now. (But you don't have to wait that long if you need it earlier. You can resume your benefits anytime before you turn 70.)

If you voluntarily suspend your benefit, you will be billed every three months for your Medicare Part B premiums, which normally are deducted from your monthly Social Security check.

Okay, what about your wife?

When she turns 62 next April, she will qualify to apply for a spousal benefit based on your record, even if you've suspended taking your benefit.

But that doesn't necessarily mean she'll be able to collect it. Here's why:

First, since she'll be under her full retirement age, she can't exclude her own work record from her application for spousal benefits. At 62, she'll automatically be deemed to be applying for her own benefit as well as her spousal benefit. If her own is the larger amount of the two, that's what she'll receive.

And second, you say she's working full-time. She may be earning too much to collect a full Social Security benefit even if she qualifies for it. In 2009, for example, you forfeit $1 of benefit for each $2 you earn over $14,160. Once you reache full retirement age, this annual earnings cap will disappear.

For a point by point explanation of all these options and links to the rules on which they're based, see my September 11 2009 article in AARP Bulletin.

Please send your questions to [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved

Should I Tap My Savings Account to Pay Off a Loan?

Q:  I have $28,000 in the bank earning 1.4%, and I also have a car loan on which I pay 5.75% interest. The remaining balance on the loan is $8,751, in forty-two more payments of $208.37 per month. But if  I pay the loan off right now, I'd only have to pay $7,775.  So I could save $976.

I have no other debt, my FICO score is good, and I'd like my credit record to be super clean. I pay off my credit card every month. I've been advised by a friend that paying off this car loan would be a good idea. Your thoughts? --LW via email

A: I agree with your friend. Paying off the car loan is a good idea.

People who are careful with money, as you clearly are, sometimes consider a savings account almost sacrosanct, and don't want to tap it for anything but an emergency. But as your situation shows, this doesn't always make financial sense. 

The basic rule of thumb for figuring out whether to keep your money in an investment or use it to pay off a loan is compare the interest on the loan with the interest you can earn on the investment.

If the loan costs you more than you're earning on the investment, it's sensible to pay off the loan.

(Bear in mind that comparing the cost of a loan with an investment return is valid only when you're talking about a predictable investment return. The cost of the loan is a sure thing. To make a bona fide apples-to-apples comparison, the return on the investment must also be a sure thing -- i.e., a guaranteed fixed rate of return. Or to put it another way, it's unwise to borrow, even at a low interest rate, to invest in a stock that's certain to triple in value within the year, or to put money on a horse that pays 20 to 1 and can't lose.)

You're earning 1.4% on your savings account, before taxes. The car loan costs you 5.75% after taxes. The interest isn't deductible unless this is a business car, notes Barry C. Picker, a Brooklyn NY tax accountant.

Paying off the loan makes sense. In addition to reducing the total cost of the loan, an immediate repayment will put an extra $208 a month into your pocket -- and in a perfect world, says Picker, you'll deposit it in your bank account.

Please send your questions to [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved

Are Unmarried Partners Ever Entitled to a Spousal Social Security Benefit?

Q:  In the past, I've read that there can be Social Security benefits for an unmarried partner. We've lived together for 22 years. His divorce was finalized in March 2004, and his ex-wife has remarried. Can I apply for spousal benefits? Do I have to be a certain age? How many years post-divorce does the government require before I can be considered a legal partner able to collect benefits? --JA via email

A: You want to be sure you'll qualify for Social Security on your partner's record? Marry the guy. 

Nine months after you tie the knot, you'll be eligible for a widow's benefit in the event of your husband's death. And two years after you marry, you'll be eligible for a spousal benefit. The earliest you can collect a widow's benefit is age 60. The earliest you can collect a spousal benefit is age 62.

That said, what you read is sometimes true: You may qualify for those benefits without getting married if you happen to live in a state that recognizes 'common law' marriage, which exists without a license or a ceremony. "The Social Security Administration tends to go with the state's definition of 'spouse'," explains Linda Lauria, an agency spokeswoman in New York City.

(This does not mean that the agency recognizes same sex marriages, which are now legal in Connecticut, Maine, Massachussetts, New Hampshire, New Jersey, and Vermont. The federal 'Defense of Marriage' law specifically prohibits federal recognition of same sex marriages.)

The states that recognize 'common law' marriage are Alabama, Colorado, Georgia (if the relationship began before 1/1/97), Idaho (if the relationship began before 1/1/96), Iowa, Kansas, Montana, New Hampshire (for inheritance purposes only), Ohio (if the relationship began before 10/10/91), Oklahoma, Pennsylvania (if the relationship began before 1/1/05), Rhode Island, South Carolina, Texas, and Utah. 

But just because you've lived together for a long time doesn't mean you have a legitimate 'common law' marriage. You also must have held yourselves out as a married couple, which usually means using the same last name, referring to each other as 'my husband' and 'my wife', and filing a joint tax return.

And both of you must have been free to marry.

"If there's a legal impediment to the marriage, it isn't a valid common law marriage," says Lauria. In your case, of course, there was an impediment for many years: your partner's ex-wife. So no matter where you live, you can only have had a common-law marriage since 2004.

Please send your questions to [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved

Dad Is Planning to Disinherit Us -- What Can We Do About It?

Q:  What happens when a father's will, drawn up in New York, does not mention his two legitimate sons? What steps must be taken to address this issue before and after probate begins? -- CR via email

A: You don't say whether Dad is still alive. If he is, his sons can try to persuade him to change his mind. If he's no longer alive, they can challenge his will. But they may have an uphill battle. Their father isn't legally required to leave them anything.

When you die without a will in New York, your assets by law are divided between your surviving spouse and your children (legitimate and illegitimate).

But if you do have a will, there's no law against using it to disinherit your kids.

Other states have similar laws.

The children are legally entitled to contest the will before it is probated. (Probate is the process in which a court affirms that the decedent's will is valid.) But to succeed in overturning it, they must prove that the will was improperly executed (Dad's signature was forged, for example); or that he lacked mental capacity to sign it -- in other words, he didn't understand what he was doing; or that he was subjected to `undue influence' -- e.g., he signed it under duress.

None of that is easy to prove.

`Improper execution' typically requires a conspiracy between a lawyer and two witnesses. Not impossible, but not very likely.

As for mental capacity, you don't need to be all that sharp to sign a will. It isn't as demanding a task as, say, preparing an income tax return, or shepherding a high school student through the college application process. All you really have to understand is what you have to leave, and who your family and friends are.

And there's a difference between influence -- which is perfectly legal -- and `undue influence', which isn't.

For example, it's not `undue influence' for Dad's new trophy wife to sweet-talk him into leaving all his money to her instead to his grown kids on the grounds that she loves him more and makes him happier, and they don't treat her respectfully. 

It is `undue influence' if his sole care-giver threatens to abandon him if he doesn't sign a will that leaves everything to her -- or if she turns him against his children by inventing monstrous lies about them.

But the kids can't challenge the will on the grounds that it's unfair. Dad may have been a mean old coot who didn't appreciate his own flesh and blood -- but as far as the law is concerned, if he knew what he was doing and he wanted to do it, his will is valid.

You can't contest a will until the person who signed it is dead. (It's unclear from your question whether you understand this.)

If your father is alive and you think that he intends to disinherit you, you have two options. One is to attempt a reconciliation while you still have the chance. (If you're estranged, you should do this anyway. After his death, you'll be glad you made the attempt even if he doesn't leave you a dime.)

The other is to challenge his mental capacity to make financial decisions. You can go to court to ask a judge to appoint a guardian to make them for him. Judges typically appoint guardians for people who are incapacitated because of debilitating illness or injury.

You should only consider taking this step if you genuinely believe that he is incompetent, and are convinced that you can prove it.

Bear in mind that the fact that he doesn't want to leave you his money is not evidence of incompetence.

If the court decides you had no substantive reason for filing the suit, it won't just reject your argument - it may also stick you with all the legal costs. 

Please send your questions to [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved