Social Security & Medicare Questions July 2011

Social Security & Medicare Questions July 2011

Q: Two years ago I lost my job and only found part time work since then.  I’m having trouble covering all my expenses.  My ex-spouse recently passed away.  I was married to him for more than 13 years and never re-married.  Could I apply for widow’s benefits based on his work record?  I’m 60.

A: You can receive survivors’ benefits on the Social Security record of your deceased former spouse if he was “fully insured” at the time of death, meaning he worked at least 10 years and was entitled to benefits.  To qualify, you must meet all the following:

• At least age 60, or age 50 and disabled;
• Married to your former spouse for at least 10 years;
• Are not entitled to a higher Social Security benefit on your own work record; and
• Are unmarried and don’t remarry until after attaining age 60, (or after age 50 if you are disabled and entitled to Social Security disability benefits.)

The amount of benefits you would receive is generally equal to the benefit of your former spouse.  If, however, he retired early at age 62, or before his full retirement age, his benefit was reduced, and that would mean you would also receive a reduced amount.

If you start survivors benefits based on your former spouse’s work record now, you potentially may be entitled to a higher benefit based on your own work record by the time you reach your full retirement age, or by age 70, due to the delayed retirement credit.  If your own retirement benefit is higher later on, you can start the survivors benefits now and switch to your own retirement benefit when you are older.  To assist with planning and to learn more about your own retirement benefits use the Social Security Administration Retirement Estimator.

Before making a final decision about starting benefits, though, it’s important to understand both the Social Security Earnings Restriction rules and the tax impact.  If you are under your full retirement age, as you are in 2011, you would be allowed to earn $14,160 or ($1,180 per month).  One dollar in benefits will be withheld for every $2 in earnings over this limit.  For example, if you earn $1,800 per month, you would be allowed $1,180, but you would have an excess of $620 in earnings over the limit.  This would reduce your benefits by $310 per month.  If you’re entitled to a monthly benefit of $1,200, your earnings would reduce your benefit to $890.

The year you reach full retirement age you will be able to earn more, and once you reach full retirement age —66 for people who are age 60 this year — you will be able to earn as much as you want without reduction.
You also need to consider the impact on taxes.  If your “provisional income” exceeds $25,000, a portion of your Social Security benefits would be taxable.  To determine provisional income, one-half your Social Security benefits are added to your earnings, and any pensions interest and dividends.

For example if your earnings are $21,600 and you received $400 in dividend income and $7,000 in Social Security, then your provisional income would be $25,500 ($21,600 + $400 + 3,5000) and a portion of your Social Security would be subject to tax.  To learn more about how tax is determined on your benefits download IRS Publication 915 Social Security and Railroad Retirement Benefits