In some ways, Social Security is the simplest part of the retirement income equation. There’s no need to choose investments or even decide how much to set aside. But the closer you look, the more complex the Social Security system is. Among the surprises: The best age to claim your Social Security benefits might depend on the ages of your children…receiving Social ­Security benefits could undermine your Health Savings Account (HSA)…you could miss out on benefits if you fail to keep tabs on the spouse you divorced decades ago. 

Five Social Security situations with easy-to-overlook twists… 

Waiting to claim could be costly if you have young or disabled kids. The standard Social Security advice is to ­delay the start of benefits—potentially all the way to age 70—because by delaying you increase the size of ­future monthly benefits. But there’s an often-missed exception—if you have minor or disabled children, there’s a good chance it’s better to claim as soon as possible. Why? These children likely can receive dependent child benefits based on your earnings history, but they can’t do that until you start receiving benefits yourself. To be eligible, a child must be younger than 18…a full-time student and 19 or younger…or any age if disabled before age 22. The child also cannot be married.

Example: Sam retires at age 63 but intends to wait to start his benefits until 66. Based on Sam’s earnings history, this delay would increase his monthly benefit from $2,080 to $2,600. But Sam has children ages 15 and 16. If he starts his benefits at 63, each of those kids will be eligible for benefits of $1,040 per month until the older child reaches 18. When that child’s benefits stop, the younger child will receive an increase to $1,300 per month until age 18. If, however, Sam waits until age 66 to start collecting his benefit, both children will be too old to qualify for benefits. If Sam lives the typical life span of a 63-year-old man—that’s another 20½ years—waiting to age 66 to claim will have cost the family $48,480.  

If you receive Social Security disability benefits, you are (or soon will be) eligible for Medicare, too. If you are deemed eligible for Social Security disability benefits, you will become eligible for Medicare as well, once you have received 24 months of Social ­Security benefits. That’s true even if you have not yet reached age 65, the usual age for Medicare eligibility. Similarly, if one of your children receives Social ­Security disability benefits based on your earnings, this child will be Medicare-eligible after 24 months of benefits. Medicare does not inform people that they are eligible, however, so many fail to apply.

Receiving Social Security benefits might mean that you can’t make HSA contributions. If your only health insurance is a “high-deductible health plan,” you typically can make contributions to an HSA—a savings account that lets you put aside pretax dollars to pay health-related expenses. But you cannot make these contributions if you’re 65 or older and receiving Social Security benefits. Why? Social Security recipients 65 and older are automatically enrolled in Medicare Part A, even if they have employer-provided health insurance and don’t yet need Medicare. Medicare Part A counts as health insurance but doesn’t qualify as a high-deductible health plan, so if you have Medicare Part A, you can’t make HSA contributions. 

Not only is there no way to decline this Part A automatic enrollment, it’s retroactive for up to six months prior to the Social Security application, dating back as far as your 65th birthday, the age at which you become eligible for Medicare. Unfortunately, many people don’t realize this and later face both income taxes and a 6% penalty on these ineligible contributions. 

Young families can be eligible for surprisingly generous benefits when wage earners die. The death of a young parent is a tragedy, but Social Security survivor benefits can at least help survivors pay their bills—if the survivors know to apply. Unfortunately, many widows and widowers don’t apply ­because they believe they won’t be eligible for Social Security until they reach retirement age. They’re only partially correct—a widowed spouse isn’t eligible for survivor benefits until age 60, but there still might be benefits available for the household. 

Children in these households typically are eligible for survivor benefits if they are under age 18 (or up to 19
if still a full-time student…or any age if disabled before age 22). And although a young widow/widower won’t qualify for survivor benefits, he/she could be eligible for a caregiver benefit if raising one or more children younger than 16 and/or disabled. Each of these benefits can be up to 75% of what the wage earner’s estimated benefit would have reached had he worked until full retirement age.

Example: Joe and Mary are married with two young children, ages two and four, when Joe dies at age 30. Joe had only eight years in the work force, and his final salary was $50,000, but Mary and the children together are eligible for approximately $3,200 per month after Joe’s death. That’s more than three quarters of the income Joe earned in his final year. 

An ex-spouse’s death could boost your benefits—even if you married someone else more recently. You already might know some of the basics of eligibility for spousal benefits. For instance, if you divorce after at least 10 years of marriage and currently are not remarried, you likely will be eligible for a spousal benefit based on that ex’s earnings starting as early as age 62. If you’re widowed, you likely will be eligible for a survivor benefit based on that late spouse’s earnings starting as early as age 60, as long as the marriage lasted at least nine months (under certain circumstances, even shorter marriages qualify) and you are not currently remarried to someone you wed before age 60. But many people don’t realize that if they were married multiple times, they could have the option of choosing which ex’s earnings record is used to calculate their benefit—and fewer still know that the death of an ex could affect which of these options is best. 

Example: Rachel was married to Bennett for 12 years before the marriage ended in divorce. She later married Eric and remained with him until his death. When Eric died, Rachel began receiving a widow’s benefit based on Eric’s earnings in the amount of $1,800 per month. That was more than the benefit she could receive based on her marriage to Bennett even though Bennett earned significantly more during his career than Eric did during his. Why? Eric’s death meant Rachel was entitled to a survivor benefit equal to 100% of Eric’s $1,800 monthly benefit…but Bennett was alive, so Rachel was entitled to a spousal benefit of just 50% of Bennett’s $2,800 benefit, which comes to $1,400. (It’s one or the other—Rachel can’t claim both.) When Bennett died last year, Rachel became entitled to a survivor benefit equal to 100% of his $2,800 per month. Unfortunately, she was not in contact with Bennett and did not realize that he died. Had she periodically asked the Social Security Administration to check if she was eligible for a survivor benefit based on Bennett’s earnings, she could have received $1,000 more per month—but the Social Security Administration won’t tell her that if she doesn’t ask. 

Caution: If you are not yet at full retirement age and still are working, survivor benefits may be reduced so much that it doesn’t make sense to claim the benefits until you do reach full retirement age or are no longer working. 

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