SHOW NOTES: 2020-06-25 MiM

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Last Week’s Question of the Week: In 2020, if you have an earned income of $50,000 and you are 49 years old, how much can you put into your 401k plan at work?

ANSWER: $19,500 in 2020.

HOST: Today, speak to us about what we need to know with regards to taking our social security benefit either individually or if we are considering the benefits of a spouse or possibly an ex-spouse? What do we need to know?

KLAAS FINANCIAL: This is a really important area that everyone planning for retirement should understand before they simply sign up to take their benefit. You need to first understand your own individual benefit. We would direct you to the website: (They’ve recently re-vamped their website) and calculate your own Social Security benefit at your FRA (Full Retirement Age) which is based on your birth year, or what the reduced benefit would be should you collect sooner.

If you have or had a spouse, there are some special considerations to be aware of with regards to collecting your Social Security benefit based on your spouse’s record.

Eligibility for current spouses:

  • Current spouses need to be married for at least 1 year.
  • You must be age 62 to file for or receive a spousal benefit, and you are not eligible to receive a spousal benefit until your spouse files for their own benefit first.

Eligibility for ex-spouses:

  • Ex-spouses (if you were married for over 10 years and did not remarry prior to age 60) both have eligibility for the spousal benefit. Your ex-spouse’s marital status has no effect on your eligibility.
  • You can receive a spousal benefit based on an ex-spouse’s record even if your ex-partner has not yet filed for his or her own benefits, but your ex must be age 62 or older and must have worked enough to be eligible for Social Security. Also, your divorce must have been finalized at least two years ago.
  • If you have remarried, you are not eligible to claim your ex’s benefits, and if you get married while you already are receiving benefits, your eligibility will come to an end. However, if this later marriage ends, because of your spouse’s death or a divorce or annulment, you may be able to start or resume claiming Social Security benefits from your ex-spouse. Check with Social Security for these unique situations to determine your eligibility.

Special Note: Taking a spousal benefit does not reduce or change the amount your current spouse, ex-spouse or ex-spouse’s current spouse may receive.

HOST: How much can you get in a Social Security benefit if you collect off your spouse or ex-spouses record?

KLAAS FINANCIAL: As a spouse you can claim a Social Security benefit based on your own earnings record or you can collect a spousal benefit based on your spouse’s or ex-spouse’s earnings that will provide you 50% of the amount of your spouse’s Social Security benefit as calculated at their full retirement age (FRA). Social Security calculates and pays the higher amount. It is worth noting that if a spouse is divorced and has not remarried, they may eligible to collect either 50% of the benefit from their divorced spouse or 100% if their ex-spouse passes away.

People ask us sometimes how they can find out how much their ex-spouses social security benefits are? You can contact your local Social Security office and a representative can provide estimates of the benefit based on their earnings record. You will need to provide your marriage certificate, and divorce decree proving that the union lasted at least ten years, which is the basic qualification for ex-spouses to receive benefits, and their social security number.

Be careful of a reduction of benefits should you take your Social Security early!

  • If you collect a spousal benefit and you begin collecting this benefit before you reach FRA, your benefit will be permanently reduced.
  • If you collect any type of benefit before your FRA, and you continue to work and receive earned income, you may owe some of your Social Security benefits back.
  • Once you reach FRA you can collect Social Security and earn any amount from working without being subject to any reduction in benefits or penalty.
  • If your spouse takes Social Security early, and you take a spousal benefit early, you will be significantly reducing the benefits that may be paid out over your lifetime and will have permanently reduced the survivor benefit for which either of you is eligible.
  • Before applying for spousal benefits, make sure you understand how your spouse’s benefit may be affected if you take your benefit early.

What to know about a restricted application:

There is something people have heard of which is choosing to receive a spousal benefit based on a restricted application. By doing this you can delay receiving your own retirement benefits based on your earnings record, until a later date. For example, at age 70 you could switch from receiving a spousal benefit to receiving your own potentially higher benefit amount. BUT due to a change in social security laws that went into effect in 2015, a restricted application is only available under the following circumstances:

  • If you were born on or before January 1, 1954, after you reach FRA, you can choose to receive only the spousal benefit. Born after that, you cannot apply.
  • Or if you are caring for a child who is under 16 or disabled.
  • Or if you are eligible for Social Security Disability Benefits

HOST: What happens to a couple’s social security benefit when someone passes?

KLAAS FINANCIAL: If you find yourself as a widow or widower:

  • You can collect a survivor’s benefit as early as age 60. Widows and widowers can restrict their application to file for either their own benefit or the widow/widower benefit, and then later switch to the other benefits amount. You might do this if your own benefit amount at age 70 would be larger than your widow benefit. You could claim the widow benefit for several years, and then at age 70 switch to your own benefit.
  • If you are already receiving social security benefits at the time of death, upon the death of your spouse, you will continue to receive your benefit, or your spouse’s, but not both.
  • In addition, a surviving spouse living in the same household is eligible to receive a one-time lump-sum payment of $255 upon the death of a spouse. But after the second person that passes, Social Security does not pay out a second benefit to the estate.
  • Overall, married couples can optimize their Social Security benefits by working together and making decisions that maximize their spousal and survivor benefits. Too many couples overlook this strategy and end up getting less lifetime income.

HOST: Mandy from our Money in Motion Listener Corner asks: “I am planning on retiring next year and will be collecting a pension. Will I have to pay tax on my monthly pension income?”

KLAAS FINANCIAL: Thanks for the question Mandy! Yes, since most pensions are funded with pretax income, the full amount of your pension income will be taxable as you receive the funds. Payments from both private and government pensions are usually taxable at your ordinary income tax rate, assuming you made no after-tax contributions to the plan.

So, generally you will be paying federal income tax on those pension distributions, and if you live in the state of Wisconsin, your pension income will also be taxed on the state level; however, if you have a government pension, (for example a U.S. Military Pension) income is exempt from Wisconsin income tax but still federally taxable.

This Week’s Question of the Week: What is the earliest age that you have to be to file for or receive a social security spousal benefit? Is it age 62 or age 72?

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Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.