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Qualifying for Social Security on a Deceased Ex-Spouse’s Work Record

Just a quick reminder: the 50%-off sale for the 2016 edition of Can I Retire? ends tomorrow. If you’re interested in a copy, you might as well grab one today.

A reader writes in, asking:

“I was married to my first husband for 26 years, then we divorced when I was 51 years old. A few years later, I remarried. Earlier this year, my husband passed away. I am 63 now and I know that I can get survivor benefits based on my deceased husband’s benefit. What I don’t know is whether is it possible to also get a survivor benefit based on the benefit of my first husband, who is also now deceased?”

In short, the requirements to be able to claim survivor benefits on a deceased ex-spouse’s record are identical to the requirements for claiming survivor benefits on a deceased spouse’s record, but with the additional requirement that you must have been married for at least 10 years prior to the divorce.

So, the full requirements are as follows:

  • You were married to the now-deceased ex-spouse for at least 10 years before you got divorced,
  • You are at least 60 years old (exception: in some cases if you are disabled, you can begin survivor benefits as early as age 50), and
  • You are not married, unless you remarried after age 60 (or after age 50, in some disability-related cases).

As with regular survivor benefits, if you are also receiving a retirement benefit, your benefit as a divorced widow(er) will be reduced (but not below zero) by the amount of your retirement benefit.

In a case (such as the one from the reader above) in which you are eligible for survivor benefits on two deceased spouses’ (or ex-spouses’) work records, you simply get the larger of the two survivor benefits if you file for either of them. (You cannot, for instance, file an application for just one of the survivor benefits at age 60 while allowing the other survivor benefit to continue growing until full retirement age.)

You can, however, use either of the following strategies:

  • File a restricted application as early as 60 for widow(er) benefits — or divorced widow(er) benefits — while allowing your retirement benefit to continue growing until age 70, or
  • File a restricted application as early as 62 for retirement benefits, while allowing your widow(er) or divorced widow(er) benefits to continue growing until full retirement age.

Want to Learn More about Social Security? Pick Up a Copy of My Book:

Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less
Topics Covered in the Book:
  • How retirement benefits, spousal benefits, and widow(er) benefits are calculated,
  • How to decide the best age to claim your benefit,
  • How Social Security benefits are taxed and how that affects tax planning,
  • Click here to see the full list.

A Testimonial from a Reader on Amazon:

"An excellent review of various facts and decision-making components associated with the Social Security benefits. The book provides a lot of very useful information within small space."

“Can I Retire?” Updated for 2016, 50% Off

Can I Retire Front CoverToday I just wanted to give you a brief heads-up that the 2016 edition of my book Can I Retire? is now available. (The prior edition was released in early 2013.)

The book will be on sale for half-off through Tuesday (9/6). That is, the paperback version will be on sale for $7.50 (rather than the usual $15), and the Kindle version will be available for $2.49 (rather than the usual $4.99).*

To be clear though, for anybody who has read a prior version of the book, I would frankly not recommend purchasing the new version just to see the changes, as the changes are modest. (The biggest changes are simply updates to the tax-related information in the book.)

For those who haven’t read the book, the chapter listing is as follows:

  1. How Much Income Will You Need?
  2. Safe Withdrawal Rates and The “4% Rule”
  3. What if 4% Isn’t Enough?
  4. Retirement Planning with Annuities
  5. How Much (and When) to Annuitize
  6. Asset Allocation in Retirement
  7. Index funds and ETFs vs. Active Funds
  8. 401(k) Rollovers
  9. Roth Conversions as a part of Retirement Planning
  10. Retirement Account Distribution Planning (tax-deferred vs. taxable vs. Roth)
  11. Asset Location
  12. Other Tips for Taxable Accounts

You can find the paperback version here: https://www.amazon.com/dp/0997946504/

And you can find the Kindle version here: https://www.amazon.com/dp/B01KOXY2U6/

*While I’ve temporarily offered new editions of Kindle books for free in the past, I don’t think I’ll be able to do that going forward. Last time (with Social Security Made Simple) several parties distributed unauthorized versions in numerous places online, and I have spent entirely too much time battling the copyright infringements.

Retiring Soon? Pick Up a Copy of My Book:

Can I Retire Cover

Can I Retire? Managing a Retirement Portfolio Explained in 100 Pages or Less

Topics Covered in the Book:
  • How to calculate how much you’ll need saved before you can retire,
  • How to minimize the risk of outliving your money,
  • How to choose which accounts (Roth vs. traditional IRA vs. taxable) to withdraw from each year,
  • Click here to see the full list.

A Testimonial from a Reader on Amazon:

"Hands down the best overview of what it takes to truly retire that I've ever read. In jargon free English, this gem of a book nails the key issues."

A Look at the New 60-Day Rollover Rules

A reader writes in, asking:

“I heard from my financial advisor that the IRS is eliminating the 60-day requirement for rollovers. Is that correct?”

No, that’s not correct. The 60-day requirement is not going anywhere. It’s in the actual Internal Revenue Code itself, and the IRS doesn’t have the power to rewrite our laws.

Let’s start with a bit of background for readers who aren’t familiar with the 60-day rule. When you do a rollover from one retirement account to another (e.g. from a 401(k) to an IRA), you have two options:

  1. You can do a direct transfer in which the money is sent directly from the first custodian to the second custodian, or
  2. You can do an indirect transfer in which the money is sent to you and you then have 60 days (from the date on which you receive the distribution) to get it deposited into the appropriate account with the second custodian.

If you do an indirect transfer, but you fail to get the money deposited within the 60-day window, you have a problem. Specifically, you won’t be able to roll the money into a retirement account, so it will simply count as a distribution (which will usually be taxable, sometimes subject to the 10% penalty, and so on).

The Code does provide the IRS with the ability to waive the 60-day requirement in cases in which “the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.” For example, waivers have been granted in cases in which the taxpayer becomes seriously ill during that 60-day window.

Historically, however, in order to get such a waiver, you would (in most cases) have had to follow the formal process for applying to the IRS for a private letter ruling. And you would then have to wait for the results of such ruling. (And in the meantime, no financial institution would have been able to accept the money as a rollover contribution, since it was outside of the 60-day window.)

The New Rules

Now, however, the IRS has announced (in Revenue Procedure 2016-47) that you will essentially be given the benefit of the doubt (that a waiver will be granted) if you self-certify that you missed the 60-day window for one of several specific reasons listed (e.g., death in the family, serious illness, error on the part of one of the financial institutions). The Revenue Procedure even provides an example letter than you can use to make such a self-certification.

The result would be that:

  • You can file your taxes in keeping with the assumption that the 60-day requirement will be waived (rather than having to report a taxable distribution), and
  • Financial institutions will be able to accept the money as a rollover.

Of note, making such a self-certification does not guarantee the IRS will ultimately grant a waiver. The IRS can still examine your self-certification, and if they determine that the requirements for a waiver were not in fact met, you will not be granted one.

One final point: Despite the above changes, the easiest and safest method for getting money from one retirement account to another is still to opt for a direct transfer.

Retiring Soon? Pick Up a Copy of My Book:

Can I Retire Cover

Can I Retire? Managing a Retirement Portfolio Explained in 100 Pages or Less

Topics Covered in the Book:
  • How to calculate how much you’ll need saved before you can retire,
  • How to minimize the risk of outliving your money,
  • How to choose which accounts (Roth vs. traditional IRA vs. taxable) to withdraw from each year,
  • Click here to see the full list.

A Testimonial from a Reader on Amazon:

"Hands down the best overview of what it takes to truly retire that I've ever read. In jargon free English, this gem of a book nails the key issues."

Investing Blog Roundup: Advanced Tax Planning with Muni Bond Funds

We’ve talked before about both tax-loss harvesting and tax-gain harvesting with bonds. This week, author/advisor Allan Roth shares an advanced tax planning strategy using muni bond funds, in which investors can expect to be able to claim a tax loss without actually having incurred an economic loss.

Investing Articles

Other Money-Related Articles

Thanks for reading!

What Does Present Value Mean?

A reader writes in, asking:

“I’ve recently been using different Social Security calculators to compare claiming strategies. I’ve read that they calculate the ‘net present value’ of benefits received. What exactly does that mean?”

The concept of present value falls under the broader topic of “time value of money.” The idea of time value of money is one that people know intuitively: you would rather receive a dollar today than a dollar at some point in the future. The primary reason why you would (usually) prefer to receive a given amount of money now rather than the same amount of money at some point in the future is that, if you had the dollar today, you could invest it and start earning a return immediately.

The concept of present value asks: what is the value today of a certain amount of money at some point in the future? For example, how much would you be willing to pay today for $100 one year from now?

We answer that question by first figuring out a “discount rate,” which is the rate of return we give up by not having the money available today. For example, if we could safely earn a 3% return over the next year, then our “discount rate” would be 3%. This means that the present value of $100 one year from now would be $100 ÷ 1.03, or $97.09.

For many people, the concept of present value is easier to understand in reverse. In our example, $97.09 is the present value of $100 one year from now, because if we grow $97.09 by 3% for one year (i.e., we multiply it by 1.03) we get $100. So we would be indifferent between having $97.09 today or $100 one year from now.

And, using the same 3% discount rate, what would be the present value of $100 two years from now? It would be calculated as $100 ÷ 1.03^2, or $94.26. (And we can confirm that this figure is correct, because if we grow $94.26 by 3% for the first year and by another 3% for the second year, we do indeed get $100.)

Present Value of a Series of Cash Flows

We can also use the present value concept to calculate the present value of a series of cash flows. For example, what is the present value of an annuity that pays you $10,000 per year for the next 20 years? We would answer that question by calculating the present value of $10,000 one year from now, the present value of $10,000 two years from now, and so on all the way up to 20 years in the future. Then we would add all of those present values together.

And that’s what Social Security calculators are doing. They’re using data about mortality to calculate the present value of the stream of cash flows that you would likely receive with strategy A, and comparing that to the present value of the stream of cash flows that you would likely receive with strategy B.

So What Does Net Present Value Mean?

The net present value of an investment/strategy is the sum of the present values of all of the cash flows received, minus the sum of the present values of all of the cash outflows. In the case of Social Security claiming strategies, however, there are no relevant cash outflows. That is, the cash outflows are the Social Security payroll taxes you pay over the course of your career in order to qualify for a benefit, but those taxes are the same regardless of which claiming strategy you use, so we do not need to include them in an analysis that compares claiming strategies.

Want to Learn More about Social Security? Pick Up a Copy of My Book:

Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less
Topics Covered in the Book:
  • How retirement benefits, spousal benefits, and widow(er) benefits are calculated,
  • How to decide the best age to claim your benefit,
  • How Social Security benefits are taxed and how that affects tax planning,
  • Click here to see the full list.

A Testimonial from a Reader on Amazon:

"An excellent review of various facts and decision-making components associated with the Social Security benefits. The book provides a lot of very useful information within small space."

Investing Blog Roundup: More 401(k) Lawsuits

Over the last couple of weeks, lawsuits have been filed against a whole list of retirement plan sponsors. As Morningstar’s John Rekenthaler explains, the plans being targeted are not the worst plans around. In fact, they’re better than average. So why are these plans being targeted? And should we expect the lawsuits to result in any improvement for the employees in question — or the industry in general?

Other Money-Related Articles

Thanks for reading!

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