Please Advise on My/My Spouse’s Social Security Claiming Strategy

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Small Law Survivor
Posts: 423
Joined: Tue Nov 17, 2015 5:36 pm

Please Advise on My/My Spouse’s Social Security Claiming Strategy

Post by Small Law Survivor » Thu May 10, 2018 4:32 pm

I am 67 years old this month (May 2018). I was born in May 1951.

I’m still employed part-time, and my company allows me to contribute to its health savings account. We do not spend this money - it is invested. So, I am able to deduct and invest close to $8,000/year. I’ll be able to withdraw this money tax free for past/future medical expenses at some point in the future.

I don’t intend to file for social security until I’m 70, 36 months from now. Assuming all goes well, I’ll be able to contribute to the HSA during that 36 month period, adding $24,000 to the HSA.

My wife is 18 months younger than me. She was born in October 1952, and will turn 66 in October 2018. My wife’s benefit on her own earnings is much smaller than mine. Therefore, our intention is that she will receive spousal benefits (one-half of my FRA/age 66 benefit) when I turn 70 in May 2021.

My issue is: what should she do with respect to social security during the 30 month period between October 2018 and May 2021? This question is constrained by an important consideration: I cannot file for social security during that 30 month period - if I do, I am automatically enrolled in Medicare Part A, and barred from contributing new money to the HSA.

I need guidance on a social security strategy for my wife during the 30 month period from October 2018 to May 2021.

My current working assumptions, which may be wrong (hence this post), are as follows:

I will do nothing with social security until I’m 70. As noted, if I file any kind of application I’ll be enrolled in Medicare Part A and barred from contributing to the HSA. Continuing to contribute to the HSA is my highest priority, and if a claim for benefits by my wife before May 2021 puts this at risk, she would do nothing during those 30 months - just wait and claim spousal benefits in May 2021.

However, if it will have no impact on my ability to contribute to the HSA (which I believe to be the case), my wife will file for benefits based on her own earnings in October 2018, and receive those benefits until May 2021, at which time she will start receiving the larger spousal benefits. The exact mechanics of how this is achieved is not clear to me.

I need guidance on this approach. Is my thinking correct, or am i missing something?

Thank you in advance.

spencer99
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Re: Please Advise on My/My Spouse’s Social Security Claiming Strategy

Post by spencer99 » Thu May 10, 2018 5:19 pm

Your spouse's claim will have no impact on your benefit or your ability to delay until age 70.

A question. Have you considered your option to file a restricted spousal claim after your wife files allowing you to earn one half of your spouse's PIA from that time until age 70 and how those earnings may compare to your projected HSA accumulation?

curmudgeon
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Re: Please Advise on My/My Spouse’s Social Security Claiming Strategy

Post by curmudgeon » Thu May 10, 2018 5:22 pm

I'm not an expert in this area, but I would consider whether your wife would automatically be enrolled in medicare when she started SS. That would presumably limit your HSA deduction to the individual limit (roughly half). I suspect it still makes the most sense for her to claim at FRA, even if the benefit is only a few hundred per month, as delaying further would be giving up that money with no return.

Small Law Survivor
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Re: Please Advise on My/My Spouse’s Social Security Claiming Strategy

Post by Small Law Survivor » Fri May 11, 2018 8:41 am

spencer99 wrote:
Thu May 10, 2018 5:19 pm
A question. Have you considered your option to file a restricted spousal claim after your wife files allowing you to earn one half of your spouse's PIA from that time until age 70 and how those earnings may compare to your projected HSA accumulation?
Thank you - I haven't run the numbers, but I fairly certain that the benefits of the HSA would significantly outweigh the revenue from one half of my spouse's PIA during that 30 month time period.

Small Law Survivor
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Re: Please Advise on My/My Spouse’s Social Security Claiming Strategy

Post by Small Law Survivor » Fri May 11, 2018 8:43 am

curmudgeon wrote:
Thu May 10, 2018 5:22 pm
I'm not an expert in this area, but I would consider whether your wife would automatically be enrolled in medicare when she started SS. That would presumably limit your HSA deduction to the individual limit (roughly half). I suspect it still makes the most sense for her to claim at FRA, even if the benefit is only a few hundred per month, as delaying further would be giving up that money with no return.
Hmmmm ... this hadn't occurred to me. I'm not sure that her benefit would outweigh the value of the larger HSA contribution.

[update:] her benefit is $400/m. at age 66. So, for the entire 30 months we're talking about $12,000. This would be taxable (probably at 22%, maybe 24%, depending on how aggressive I am with Roth conversions).

This is tough stuff - I'm wondering how to find someone that could consult with me on this on a formal basis?

Jackson12
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Re: Please Advise on My/My Spouse’s Social Security Claiming Strategy

Post by Jackson12 » Fri May 11, 2018 9:51 am

As you note, due to your birthdates, the rules regarding deemed filing do not apply to you. My spouse and I are in that same group of people.
I believe you can do this:
1) Your wife can file for retirement benefits.
2. You use a restricted application and file for your retirement benefit when you reach age 70.
3. After that , your wife files for a spousal benefit on your work record, assuming her PIA us less than 1/2 of your PIA. . It’s vital that you file for your retirement benefit before she files for her spousal benefit.

I’m not sure when you can file for spousal benefits ...given your concerns about the HSA. We don’t have an HSA and this is our filing strategy, parts of which may be relevant to you:

1) I file for retirement benefits.
2) After my husband reaches his FRA, he files a restricted application for spousal benefits.
3) He files for his retirement benefit when he reaches age 70.
4) Since my PIA < 50% of his PIA, i then file for a spousal benefit based on his work record.

Jackson12
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Re: Please Advise on My/My Spouse’s Social Security Claiming Strategy

Post by Jackson12 » Fri May 11, 2018 10:16 am

Small Law Survivor wrote:
Fri May 11, 2018 8:43 am
curmudgeon wrote:
Thu May 10, 2018 5:22 pm
I'm not an expert in this area, but I would consider whether your wife would automatically be enrolled in medicare when she started SS. That would presumably limit your HSA deduction to the individual limit (roughly half). I suspect it still makes the most sense for her to claim at FRA, even if the benefit is only a few hundred per month, as delaying further would be giving up that money with no return.
Hmmmm ... this hadn't occurred to me. I'm not sure that her benefit would outweigh the value of the larger HSA contribution.

[update:] her benefit is $400/m. at age 66. So, for the entire 30 months we're talking about $12,000. This would be taxable (probably at 22%, maybe 24%, depending on how aggressive I am with Roth conversions).

This is tough stuff - I'm wondering how to find someone that could consult with me on this on a formal basis?
Please see my earlier comment about filing strategies. As for Medicare, we were told by both a social security rep as well as the Human Resources manager at work that the Part A portion of Medicare could be refused, temporarily, but only if the employer health insurance plan was equal to or greater than what Medicare offers . There are other variables, such as number of employees, that matter.

Here’s the relevant Medicare.gov page which focuses on reaching age 65 and choosing Medicare Part A ( and B , if that’s if interest) : https://www.medicare.gov/sign-up-change ... lapse-5567
Last edited by Jackson12 on Fri May 11, 2018 12:34 pm, edited 1 time in total.

SuzBanyan
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Re: Please Advise on My/My Spouse’s Social Security Claiming Strategy

Post by SuzBanyan » Fri May 11, 2018 10:49 am

OP: To me, it looks like you are so focused on the HSA tree that you are ignoring the forest that is your total healthcare costs.

While a high-deductible plan may be a more cost-effective choice for you and your spouse than Medicare with a supplemental and drug plan, this is by no means the only possible answer. In addition to the premium costs, for 2018, your high-deductible insurance plan will have a minimum $2700 deductible and may have a maximum out of pocket cost as high as $13,300. Unless your employer pays all those costs, one illness may be enough to demonstrate that Medicare was a cheaper option.

Second, it looked to me from your first post that your employer does not fund your HSA. Thus, your comparison is between $12k of additional taxable income and an ability to put about $15k into an HSA. Even with the magic of compounding, the additional income will almost certainly be a greater sum.

Finally, if you decide to stick with a family plan HDHP and an HSA, the total allowable contribution in 2018 for a couple who are each over 50 is $9900 ($7900+$1000+$1000). If your spouse doesn’t yet have an HSA, you should set one up and possibly fund most of your contribution there. The $1000 catch-up contribution for you must go into your HSA and the $1000 for your spouse must go into her HSA. The rest can be divided between the accounts however you want.

Small Law Survivor
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Re: Please Advise on My/My Spouse’s Social Security Claiming Strategy

Post by Small Law Survivor » Fri May 11, 2018 11:24 am

SuzBanyan wrote:
Fri May 11, 2018 10:49 am
OP: To me, it looks like you are so focused on the HSA tree that you are ignoring the forest that is your total healthcare costs.
I'll respond to this in more detail later. But, this thread demonstrates that I need some hands-on guidance on this issue. For me, this is not do-it-yourself territory. There are too many rules, and I don't want to study up and become an expert to make a one-time decision.

Where can I get competent guidance on these issues?

curmudgeon
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Re: Please Advise on My/My Spouse’s Social Security Claiming Strategy

Post by curmudgeon » Fri May 11, 2018 3:42 pm

Small Law Survivor wrote:
Fri May 11, 2018 8:43 am
curmudgeon wrote:
Thu May 10, 2018 5:22 pm
I'm not an expert in this area, but I would consider whether your wife would automatically be enrolled in medicare when she started SS. That would presumably limit your HSA deduction to the individual limit (roughly half). I suspect it still makes the most sense for her to claim at FRA, even if the benefit is only a few hundred per month, as delaying further would be giving up that money with no return.
Hmmmm ... this hadn't occurred to me. I'm not sure that her benefit would outweigh the value of the larger HSA contribution.

[update:] her benefit is $400/m. at age 66. So, for the entire 30 months we're talking about $12,000. This would be taxable (probably at 22%, maybe 24%, depending on how aggressive I am with Roth conversions).

This is tough stuff - I'm wondering how to find someone that could consult with me on this on a formal basis?
I'm not sure your case would fall into a simple rule of thumb, but on the other hand, the amounts involved aren't really all that large, so the consequences of the less-optimal choice are limited. Do keep in mind state tax effects as well as federal, if they apply. Note that if your wife is started on medicare in Oct 2018, your eligible HSA deduction will be limited proportionally.

Based on the numbers above, I think your wife should take her benefit at FRA. The benefit generates $4800/year of income, less $1200 in taxes. You will also lose ~$4800/year of HSA deduction (we'll assume that the HSA money will be able to be spent tax-free). Call that another $1200/yr of taxes. The net gain is approximately $2400/year. It might be different if you were facing an ACA cliff, but taking the benefit seems a clear net positive.

Small Law Survivor
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Re: Please Advise on My/My Spouse’s Social Security Claiming Strategy

Post by Small Law Survivor » Wed May 16, 2018 8:55 pm

Here is what a financial advisor said about my question:
Regardless of whether the wife is enrolled in Medicare, husband can still have a family HSA-qualified plan and make family-level contributions to the account, up to $7,900 for 2018. This will include only his own catch-up contribution, of course, and only applies until husband files for Social Security and subsequently becomes enrolled in Medicare.

Since wife reaches 66 and is intending to file for SS benefits in October, she could also make 2018 contributions to HER HSA plan of up to $750 (nine months' worth) for 2018. [NOTE: I have never set up an HSA for my wife]

Regarding the filing strategy, it is perfectly right for wife to file for her own benefit and receive that amount from her FRA of age 66 up to the point that husband files for his own benefit at his age 70. She can then file for spousal benefits, receiving an increase to 50% of husbands original PIA plus COLAs to that point.
I would appreciate any comments on this advice.

Thank you.

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