Should Ministers Opt Out of Social Security?

If you are a minister, you have several key tax issues that makes you uniquely different from other taxpayers. These differences include the housing allowance, self-employed treatment for W-2 wage earners and the big one…the ability to opt out of Social Security.

All of these tax differences can create a great deal of complexity, and should only be handled with a team of competent tax and financial advisers. However, the ability to irrevocably opt out of Social Security is probably the most complex financial planning issue for new ministers as it carries a high degree of long-term consequence if the wrong decision is made.
Should Ministers Opt Out of Social Security

If you are a new minister, I know this decision can be complicated. It’s more than just a financial decision.  If you opt out, you must agree to the following language:

I certify that I am conscientiously opposed to, or because of my religious principles I am opposed to, the acceptance of any public insurance that makes payments in the event of death, disability, old age, or retirement; or that makes payments toward the cost of, or provides services for, medical care. 

That’s weighty for sure, but my focus for this article is not to debate the ethical and moral issues of opting out, the good Lord knows there’s already been plenty written about that.   My goal is to examine the economic aspects of opting out.  Specifically, I want to help quantify what it would take to replace the benefits that you’re walking away from.

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Who You Should Talk To At Your Local Social Security Office

I help a lot of people with Social Security. One thing they all have in common is that they’ve called their local Social Security office at least once. Most of these calls have ended in frustration. It doesn’t have to be that way. If you know who to ask for, you’ll get the help you need.

Hierarchy at Social Security officeA decent part of my living comes from consulting with individuals throughout the nation with Social Security issues. For some, it’s simply determining how their filing strategy fits in with their overall retirement plan and making sure they haven’t missed anything. For others, I help solve complex Social Security problems. Many of these people that I help would never call me if they would have received a satisfactory answer and solid advice when they called their local Social Security office. So I may be hurting myself slightly, but I can’t stand to see any more bad (and sometimes non-reversible) decisions made as a result of incorrect guidance from the Social Security Administration. I’m going to tell you who to ask for the next time you call.

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Retiring Overseas? Make Sure Your Social Security Benefit Will Follow

Ever dreamed of retiring overseas?

After a life spent in the States, maybe you’d prefer the cultural heritage of Latin America, the sand of the Caribbean or the ancient beauty of Europe. Before you pack your bags, make sure your selected destination is one of the countries where you can still receive your Social Security benefit.

Want to retire overseas? Make sure Social Security will follow

The rules are incredibly complex for those who are eligible for Social Security benefits, but are outside of the United States.  These rules apply not only to those who plan to move, but could apply to someone who was on a missions trip or extended vacation.

For the purposes of this article, we’ll limit our discussion to US citizens who have lived and worked in the United States and decided to retire overseas (or extensively travel) during their retirement years.

The Social Security Administration makes it clear.  If you are a US citizen, you can receive your Social Security benefits if you are outside of the United States.  As you may suspect, there are some stipulations.

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The Best Way To Fix A Social Security Overpayment Letter

OverpaidSS

Social Security Overpayment letters are becoming more common.

For those who depend on Social Security payments, receiving a Notice of Overpayment is no fun.  These notification letters will often show up after a change in income or family status and generally allege that the Social Security Administration has paid you too much money.  In this letter they offer you a 30 day window to repay the benefits.

This leaves many shaken who count on this income to buy their groceries or some other necessity.   Fortunately, the Administration is often incorrect in their calculations.

However, there is still a process to follow if you receive one of these letters.  Unless otherwise stated, you have three options.

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Social Security and Divorce: How to Get Checks from Your Ex

Legal gavel on top of divorce papers

 

Divorce is difficult. Though I’ve never personally been through it, I’ve watched as dozens of my clients and friends have gone through the process.

From my side of the desk, I’ve yet to see a single divorce where either spouse emerged with a higher net worth after the split. Everything changes.

So before you sit down with your financial planner to rethink your retirement income strategy, let me explain more about how Social Security and divorce work to make this possible, and why you need to know.

Will Your Divorce Impact Your Ability to File for Social Security?

There’s some good news to start. What divorce may not impact is your ability to file for Social Security on your ex-spouse’s record.

All you need to do is meet the qualifications. The basic rules are that:

  1. Your marriage must have lasted at least 10 years.
  2. You must be 62 or older (60 if they are deceased).

That’s pretty much it — but if we stop there, we’re only telling part of the story about how Social Security and divorce cases work. Let’s take a closer look.

How Social Security and Divorce Cases Work, Depending on Your Circumstances

The spousal benefit rules for married individuals require the higher earning spouse to file first before a spousal benefit can be paid to a lower earning spouse.

But that’s not how it works with divorce cases. You can collect on your ex-spouse’s record even if he or she hasn’t applied for benefits!

There are some caveats, though. You must have been divorced for at least two years and your ex-spouse must be eligible for benefits, and typically this means that your ex must be at least 62 years old.

If you’ve met the length of marriage rules, and your ex-spouse is still living, you are eligible for the greater of:

  • your own benefit, or
  • up to 1/2 of your ex-spouse’s full retirement age benefit.

Here’s an example:

Your ex-spouse has a full retirement age benefit amount of $2,000. Based on that alone, you could expect to receive $1,000 spousal benefit at your full retirement age.

However, the actual amount you receive may be less, based upon the age that you file for benefits.

Depending on how old you are when you file, the spousal benefit amount will range between 32.5% and 50% of the higher-earning spouse’s full retirement benefit.

In the chart below, we’ll assume that your full retirement age is 67 (the full retirement age for those born in 1960 or later). We’ll continue the assumption that your ex-spouse’s full retirement age benefit is $2,000 per month:

socials-security-spousal-benefits-from-an-ex-spouse

You probably noticed the penalty for filing early. You may have also noticed that the spousal benefit does not increase beyond your full retirement age.

So, if a spousal benefit is highest benefit that you are entitled to, there is usually not a good reason to delay filing beyond your personal full retirement age.

And remember: if you are divorced, and your ex-spouse has not yet filed for benefits, you must have been divorced for at least two years before you can claim benefits based upon your ex-spouse’s history.

Filing for Benefits When You’ve Had Multiple Marriages, Or Your Ex-Spouse Is Deceased

Social Security rules say that as long as all marriages have ended, you are not currently married, and you’ve met the length of marriage rules, you can choose the highest benefit from any of your ex-spouses.

If circumstances change — perhaps an ex-spouse passes away — then you you could switch from a spousal benefit on one spouse, to a survivors benefit on another.

If your deceased ex-spouse was the higher income earner, your benefit would be equal to his or her full benefit, minus any reduction for your age. (You can file for a survivor benefit as early as age 60.)

Before you do this, however, be warned: If you remarry prior to age 60, you lose the right to claim on an ex-spouse’s record, at least until the subsequent marriage(s) end in death or divorce.

If you remarry after age 60, you are eligible to receive benefits based on the highest of your benefit, your current spouse’s benefit, or your deceased spouse’s survivor benefit.

If You Want to File for Benefits on Your Ex-Spouse’s Record, Use This Special Strategy to Yield Higher Benefits

Don’t grab your keys and head off to your local Social Security office just yet. Just because you can file on your ex-spouse’s benefit doesn’t mean that you should.

At the very least, you need to know your options about some filing strategies that could drastically increase the amount of cash flow and lifetime benefits you could receive.

If your ex-spouse is deceased, you have met the length of marriage rules, and don’t exceed the income limitation, you could file a restricted application for a survivor benefit as early as age 60 and switch back to your own benefit at full retirement age or later.

Here’s an example to illustrate how this works:

Let’s say that Karen has her own Social Security benefit available of $2,000 at her full retirement age of 67. Currently she’s 62, and is also eligible for a survivors benefit of $1,300 today.

She could file for only the survivors benefit and let her benefit increase with delayed retirement credits. At age 70, she could switch back to her own benefit which would have grown to $2,480 (not including cost of living adjustments!).

This strategy is only available for those eligible for a survivors benefit — but if you qualify, it can help you reap big rewards in attaining more retirement cash flow.

Don’t Expect the Social Security Administration to Tell You This

The rules for Social Security benefits for former spouses are pretty generous, and the program can provide much-needed income during retirement years. Making sure that you understand the rules is key to receiving the maximum benefit to which you are entitled.

The amount of benefits you, or your survivor, will receive can often hinge on how much you know! But don’t expect the Social Security Administration to look at all of your prior marriages and make a determination about which eligible benefit is best for you.

They make it pretty clear…proving that there are eligible benefits from prior marriages is the responsibility of the claimant.

Unless you know the rules, it’s pretty easy (and common!) to miss benefits from a prior marriage.

Adding to the challenge is that once you are divorced, the Social Security Administration stops sharing information about your ex-spouse’s benefit amount with you.

That’s great for privacy, but bad for obtaining information and planning.   However, if you ask them specific questions, they will answer.

See their publication on Social Security and Divorce here.

At least now you know that you need to dig into the rules and figure out your options before you make a filing mistake — but you could still be concerned that you might miss out on benefits.

In that case, if you still have questions you could leave a comment below… but what may be an even greater help is to join my FREE Facebook members group.

It’s very active and has some really smart people who love to answer any questions you may have about Social Security. From time to time I’ll even drop in to add my thoughts, too. 

You should also consider joining the 100,000+ subscribers on my YouTube channel! For visual learners (as most of us are), this is where I break down the complex rules and help you figure out how to use them to your advantage. 

One last thing that you don’t want to miss: Be sure to get your FREE copy of my Social Security Cheat Sheet. This handy guide takes all of the most important rules from the massive Social Security website and condenses it all down to just one page.