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AARP Article

How To Write A Last Letter To Your Loved Ones

Complete your estate plan with this one last bit of paperwork

Let’s assume you’re well-organized. All your personal papers are in order, your will and living will are up to date, and you’ve named a health care proxy. You’ve readied final instructions and listed which of your heirs get which personal mementos. Are you done?

No. As helpful as all your preparations are going to be, nowhere have you mentioned love.

VJ Periyakoil, a specialist in geriatrics and palliative care at the Stanford University Medical Center, has had countless conversations with people near the end of their lives. The most common thing they talk about, she says, is regret — regret that they hadn’t spoken enough loving words to their spouse, or told their children how much they cared, or apologized for doing something hurtful, or thanked a special friend.

It’s not too late, as long as you still can put pen to paper (or hand to keyboard). Think about writing your family or best friend a “last letter,” showing what’s in your heart. Your words will make their lives a little better.

It’s often tough to get started on such a letter, especially when you’re still healthy and don’t feel an immediate need. But there’s help. The Stanford Letter Project, founded by Periyakoil, offers a friends-and-family letter template for your thoughts, as well as suggestions on what to include. You’ll find the template and sample letters at med.stanford.edu/letter.

Good letters start the way you might expect — acknowledging the important people in your life, telling them that you love them and expressing pride in their achievements. Maybe you think you don’t have to write these things down because you’ve said them already. But spoken words sometimes get lost in the family scrum. Written, they can be held in the hand, and cherished, for life. You might also mention treasured moments you spent with your child, family or friend.

Next comes a harder part — the apology section. Many patients, looking back, find themselves pained by specific actions or behaviors that hurt one of the people they love, Periyakoil says. She urges you to say you’re sorry. One letter won’t fix, say, a distant relationship with a sister. But it might make her (and you) feel a little better. If you write this letter while still healthy, it might even impel you to try healing that relationship. In this respect, these letters become what Periyakoil calls a CT scan of your soul. They can open new paths while you’re still alive.

You might also forgive anyone you love who has hurt you in the past, if you can. It’s solace for those you love, and cathartic for you. If you can’t forgive, keep mum. A last letter from you should be one of love and reconciliation, not spite. Death does not end your responsibility to those you leave behind.

Finally, remember to thank people for the love and care that you have received, and say goodbye.

Once you’re finished, put the letter (or letters) with your will or in a drawer where you store precious things. When you’re ready, consider delivering the letter yourself. For your family, it will be an abiding gift. 

 (Originally published in The AARP Monthly Bulletin.)

AARP Article

How to Tap Into Your Retirement Savings

The best source to draw from depends on a number of factors 

If you depend on investment accounts for retirement income, you’ll have to pull money from them periodically to get cash for your everyday expenses. Those withdrawals will likely come from dividends, interest, mutual fund distributions and sales of securities. But how do you pick which source to draw upon?

Fix your mix

Think about the balance you want to maintain between the stocks and bonds (or stock funds and bond funds) in your portfolio — say, 50 percent of your money in each. If gains or losses on either side throw off your target mix by 5 percentage points or more (say, to 55 percent stocks and 45 percent bonds), rebalance by selling some of the overweight investment to restore the 50/50 split (or something close).

Sell tax-deferred assets

If you’re entirely invested in mutual funds in your traditional individual retirement account (IRA) or 401(k), pulling money out is easy. That’s because no matter where you take your money from within these accounts — stock funds, bond funds or a cash balance — your withdrawals will all be taxed in the same manner: as ordinary income. Reach your dollar goal by selling stock or bond shares in a way that maintains or restores the investment balance that you desire.

Use taxable interest and dividends

If you have taxable accounts (such as a brokerage account that holds stocks, bonds or funds but isn’t a 401(k) or IRA), start out by withdrawing this year’s income — interest, dividends, mutual fund distributions and realized capital gains. Then sell stocks or bonds to restore your desired investment balance, taking out the rest of the money you need. Always be sure to sell investments that you think have the least promise.

Hold off in bad times

When markets are down, think about skipping or reducing your annual withdrawal and living off the cash cushion you’ve already set aside.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

4 Steps to Make Your Money Last a Lifetime

A simple, easy-to-use formula to make sure you never run out of cash 

As a financial columnist, I get asked the same heartfelt question over and over: “How do I make sure I don’t outlive my money?” And that makes sense. Surveys confirm that the No. 1 worry among older Americans is running out of cash. Fortunately, financial planners have come up with sound ways to prevent this. Collected here are their key rules for maintaining a livable income for life, plus case studies that show how to put these general rules into action. The goal is your peace of mind — knowing that you’re getting the most from the money you’ve saved and that you’ll always have enough.

The Magic Number

The key to long-term planning is knowing one essential number: how much money you can afford to spend annually. From there, you can adjust your expenses to fit.

You may be tempted to reverse the order — estimate your future expenses, then adjust your investment assumptions to make that spending appear possible. But that’s wishful thinking: a hope that big investment returns will rescue your budget. It leads to overspending early on, and regret later.

Instead, let’s focus on the real, guaranteed money you’ll have. There are two main sources:

  • Your personal savings and investments.
  • Your guaranteed income from other sources.

Key Steps

Step 1: Tally Your Guaranteed Income

The most common source is Social Security, which you may already be collecting. (If you’re not, get an estimate by calling Social Security or by opening a My Social Security account at ssa.gov.) You might also have a pension or annuity. If you own a reliable rental property, include the amount of rent you receive after expenses.

Step 2: Estimate Your Income from Savings

How much annual income can you prudently take from your savings and investments? To get the answer, there’s a surprisingly simple rule of thumb:

  • Add up the current value of your spendable assets, such as bank accounts, mutual funds, stocks and bonds. Include both retirement and nonretirement savings.
  • Subtract from that total a cash cushion to help cover near-term expenses.
  • Then take 4 percent of what remains.

That’s the “safe” amount of your assets that financial planners say you can afford to spend in the first year of retirement without running the risk that your savings will run out. In each subsequent year, take the same dollar amount plus an increase for inflation.

Example: Say you have $100,000 invested (plus a cash cushion). In the first year of retirement you could spend $4,000 of that money. If inflation is running at 3 percent, your second-year withdrawal would be $4,120 — the first-year amount plus an inflation increase. Follow this pattern in each future year.

Under this system, known as the “4 percent rule,” your savings should last at least 30 years and probably more. That forecast is based on the pioneering work of planner William Bengen, who tested 30-year spending rates against the historical returns of U.S. stocks and Treasury bonds. Some years the markets are up and some years they’re down, but the 4 percent rule takes that into account. As long as you keep withdrawing a steady amount of money, plus increases for inflation, you won’t run out. This rule would have protected your annual income even during 30-year periods that included the Great Depression of the 1930s and Great Stagflation of the 1970s. In better periods, savings lasted for many years more.

Step 3: Total Your Income

Add that “safe” 4 percent amount to your annual guaranteed income. For example, if you’re due $20,000 from Social Security and take $4,000 from a $100,000 nest egg, you’ll have $24,000 that you can safely use for living expenses, including any taxes.

Step 4: Set Your Budget

Finally, divide your expected yearly income by 12 to get your available monthly cash. And that’s it. Don’t worry about inflation; your income should keep up with inflation, thanks to Social Security’s cost-of-living increases and the annual increases you take from savings.

Special Factors

You’re Married

Calculate your spendable income three ways: once as a couple, once assuming that you die first, and once assuming that your spouse dies first. Don’t skip this analysis! Couples generally get two Social Security checks — one per spouse. The survivor will get only one. If you get a pension, it, too, might go down or go away when you die. Each spouse should know what might change after the other’s death.

You’re a Homeowner

Worried that these numbers won’t fund a decent standard of living? You might want to tap your home equity.

Home equity loans, however, can be hard for retirees to get. Instead, if you want to stay put, you might get a reverse mortgage: a loan against your home with no payments due until you leave it permanently. The debt is usually settled via proceeds from your home’s sale. Costs are high: If your house is worth $260,500 — the median U.S. price — a $50,000 credit line might carry $13,000 in one-time fees. (That money comes from your home equity, not your pocket.) Another option: Take in a renter. Or you could downsize, adding your home-sale proceeds to your investments.

You Fear Stocks

The 4 percent rule rests on the premise that you invest about half of your nest egg in low-cost funds — index mutual funds or exchange-traded funds — that hold big-company stocks and track the market’s moves. The other half is in Treasury bond funds. If you also hold funds with smaller stocks, Bengen says it’s safe to start at 4.5 percent.

If you avoid stocks, however, and own only bonds and CDs, 4 percent is too high. Your initial safe withdrawal rate is more like 3 percent, says economist Wade Pfau of the American College of Financial Services in Bryn Mawr, Pa. You might also start with that number if you retire early or own individual stocks, which are riskier than market-tracking mutual funds.

On the other hand, you might go higher. The original 4 percent rule was designed to protect you from the worst of times, says financial planner Jonathan Guyton of Edina, Minn. But most 30-year periods do just fine, and you might find that you’re skimping while money piles up. Guyton suggests starting with 5 or 5.5 percent. But do that, he says, only if you have at least 60 percent of your investments in stocks and you’re willing to cut back a little — say, 10 percent of your planned annual withdrawal — when markets fall. Five percent also makes sense if you want only 20 years of income — for example, if you don’t quit work until you turn 75.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Attention, Investors: Time to Check your Fees

Even small differences in your costs can slash savings

I preach constantly about low-fee investing. The less you pay in fees and sales commissions, the more you’ll save and the longer your money will last. Even small costs add up to huge losses over time.

For example, assume that you put $500 a month into an investment account for 30 years, earning an average of 7 percent. At a 2 percent annual fee, you’ll wind up with about $409,500, as calculated by NerdWallet, a consumer finance website. If you slash that fee to 0.25 percent, however, you’ll retire with about $561,500—that’s $152,000 more! Every penny you pay cuts into your future or current standard of living.

What qualifies as a low fee depends on the type of investment you choose and on how you opt to buy it. Here’s what thrifty investors should be looking for.

Mutual funds

The key is the expense ratio, which gathers together all the sales and administrative costs. Index funds—so-called because they track market prices as a whole— charge practically nothing. If you buy a fund that tracks the Standard & Poor’s 500 (S&P 500) index of big-company stocks, you’ll pay as little as 0.03 percent a year at the discount broker Charles Schwab (that’s 3 cents per $100), 0.035 percent at the fund company Fidelity Investments, and 0.04 percent at Vanguard. Index funds will be the lowest-cost choice in a 401(k), along with target-date funds—a mix of stock and bond funds appropriate to your age.

Index funds are called passive investments, as opposed to active funds in which managers try to beat the market by picking individual stocks. Active funds charge an average of 0.75 percent and usually don’t perform as well as the indexed group. Investors have noticed. They pulled $326 billion out of active funds in 2016 and poured a record $429 billion into passive funds, according to Morningstar’s report on mutual fund data.

Traditional brokerage firms

If you need advice, you might go to a stockbroker, aka “wealth manager” or “financial adviser.” But costs are high. For a broker-sold S&P 500 index fund, for example, you could pay as much as 1 percent a year or more. Your retirement account might be invested in high-cost shares of active funds when low-cost versions of the same funds are available. Mutual-
fund advisory accounts could cost up to 2 percent. “Wrap accounts,” invested with institutional money managers, range from 1.1 to 2.5 percent. Investors who don’t trade much could save a fortune by switching to an old-fashioned commission-based account.

Financial planners

You choose a planner for expert and ongoing advice about all of your personal finances. Typical fee:
1 percent for accounts under $1 million, with reductions for larger amounts. Underlying investment expenses might raise that to 1.5 percent or so among planners who don’t take sales commissions, and even higher among planners who do. The fee must include long-term planning. If you’re paying mainly for money management, you’re paying too much.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Retirement Planning and the Younger Spouse

Adjust savings and withdrawals with the age gap in mind

Retirement planning advice for married couples tends to assume two things: You’re pretty close to each other in age (with the husband perhaps a year or two older), and the husband has always been the primary breadwinner. But in this age of late marriages, divorce and second marriages, what if there’s a much younger spouse? Large age gaps between spouses require planning.

I asked several personal-finance advisers what their advice would be. Here are their thoughts.

Expect to work longer

You may have to stay employed past the typical retirement age in order to build up a larger pot of savings. If, for example, your spouse is 55 and you die, your nest egg may have to fund your spouse for 40 years. For investment growth, allocate a higher percentage of your financial assets to stocks. If that makes you nervous, you’ll have to plan on a lower level of spending — which is the hardest thing for clients to understand, says Alex Feick of Paragon Capital Management in Denver.

Plan to spend less

If you are a typical retired couple, you can afford to spend 4 percent of your savings in the first year and give yourself a raise for inflation in each subsequent year. But with a much younger spouse, you should drop your withdrawal rate to perhaps 3 percent, says Aaron Parrish of Triad Financial Advisors in Greensboro, N.C.

Reduce withdrawals

At 70½, you have to start taking money out of an individual retirement account. If your spouse is more than 10 years younger, you can reduce the required withdrawals — and stretch your savings — by using the IRS’s joint life expectancy table to calculate the amounts.

Mind the insurance gap

If the older spouse carries the couple’s health insurance and switches to Medicare at 65, the younger spouse will need to buy an individual health policy. Currently, it’s an uncertain market, with premiums going up.

Adjust your Social Security

Spouses with big age differences should generally approach Social Security as if they were single, says Bill Reichenstein of SocialSecuritySolutions.com, a website that helps you maximize your benefits. If you have health issues and don’t expect a long life, take Social Security at 62. Otherwise, wait until 70.

Consider life insurance

If you haven’t saved enough, look into a 20-year term life insurance to cover your spouse’s future needs. You can get it even at 65, if your health is good. Check the rates at term4sale.com.

Plan your pension

If you’ll get a company pension, don’t take the lump sum payment when you retire unless your spouse is already well provided for. Instead, take the maximum joint and survivor option. It will pay your surviving spouse 100 percent of your pension for life.

The younger spouse might find his or her career interrupted and savings slashed due to the needs of an aging spouse for medical and personal care, warns Susan Pack of Pomeroy Financial Planning in Cincinnati. It’s something to account for in your financial planning — and all the more reason to manage your spending and save the max.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

How to Maximize Social Security Survivor Benefits

Thousands of widows and widowers leave money on the table each year

Here’s news: More than 11,000 widows and widowers who are now on Social Security could have had higher benefits if someone had bothered to tell them about their claiming options. That unhappy fact comes from the Social Security Administration’s Office of the Inspector General. It highlights how little people know about survivor benefits and what the choices are. Here are some tips:

Who gets survivor benefits?

They’re paid to the spouse of a worker who dies. You have to have been married for at least nine months, although there are exceptions — for example, if your spouse died in an accident. Qualified children get benefits, too, as do ex-spouses if the marriage lasted at least 10 years.

What does the benefit pay? 

You get 100 percent of what your late spouse was receiving, provided that you file at your own full retirement age — 66 or 67. (Note that the survivor’s retirement age can be up to four months earlier than the age required for full retirement benefits.) Payments can start at age 60 (50 if you’re disabled), but filing before your full retirement age reduces your check. If your spouse dies before claiming benefits, your payments are calculated as if he or she had reached full retirement age, plus any deferred retirement credits. 

If you have a retirement benefit based on your own work, can you take a survivors benefit, too?

Here’s where many people miss out. You can’t take both benefits at the same time. But you can raise your lifetime income by taking them serially — something that your Social Security rep might not explain. If your future retirement benefit at 70 will be greater than your full survivor benefit, and you expect to have a normal life span, take the survivors benefit right away, says Bill Reichenstein of SocialSecuritySolutions.com. Switch to your own retirement benefit at age 70, when it will have had years to grow. Conversely, if your retirement benefit at 70 is the smaller one, take that benefit right away; switch to survivors benefits once you reach full retirement age. (Unlike retirement benefits, survivors benefits do not grow after you reach that milestone.) Very important: To use either switching strategy, you must restrict your initial application to the one benefit you want to start with. Otherwise, you may be considered as having applied for both retirement and survivor benefits at once and won’t be able to switch. 

What if you’ve been married twice? 

You generally collect on the account of your second spouse. If you remarried after you turned 60, you can collect on the account of the spouse with the higher benefit.

How do you collect? 

Notify Social Security as soon as your spouse dies. Benefits generally start from the time you apply, not the time your spouse died. If you’re currently collecting spousal benefits on a retired worker’s account and they’re low, you’ll probably be switched to the higher benefit automatically. But if you have a retirement benefit of your own, visit a Social Security office to sort out your options. 

Why is timing so important? 

Imagine Martha, turning 62, widow of George, who died at 63 without ever claiming Social Security benefits. Assume their benefits due at full retirement age (67) would be:

• Martha: $1,800/month
• George: $2,000/month 

Scenario 1: 

Martha files for retirement and survivors benefits at age 62.

Total benefits over 20 years:

$382,100

Scenario 2:

Martha files for survivors benefits at 62, then retirement benefits at 70.

Total benefits over 20 years:

$474,200

Difference: 

$92,100

Source: SocialSecuritySolutions.com

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Don’t Split Heirs With Your Estate

Consider your options carefully if you have a stepfamily

When you say “I do,” you’re entering a financial partnership as well as an emotional one. If you say “I do” a second time and have children, your partnership acquires new stakeholders — not necessarily willing ones. Adult children have expectations about how much they’ll inherit and how soon. A new spouse scrambles that calculus. “Stepparents and stepchildren are natural competitors,” says estate-planning attorney Mark Accettura, author of Blood & Money: Why Families Fight Over Inheritance and What to Do About It. “It’s the number one source of conflict in my practice.”

All should be well if you and your spouse are each financially independent and leave your own assets to your natural heirs. But if one spouse depends on the other for support, assets will have to be tied up for that spouse’s lifetime. In cases of May-December marriages, children of the older spouse might have to wait an extra 15 years or more before any money comes their way. No smiles there.

Nevertheless, your first responsibility is to your spouse. When you write a prenuptial or postnuptial agreement or update your wills, you’ll each want to be sure that the other will have enough to live on if left alone. A surviving spouse does have the right to claim certain amounts of the late spouse’s assets, in the absence of a will or proper prenup. The award can be large or a trifle, depending on state law — be sure you know which.

At the death of the first spouse, distribute at least a little cash to all the adult children, equally. It’s not so much the amount as the signal that you cared.

In families with good (or good enough) relationships, children and stepchildren should be treated the same in wills. If there’s a reason not to, the results should still seem fair. For example, take a man with a young second family. He might set aside enough for their education and divide the rest of the children’s money equally.

A persistent source of conflict is the division of personal property, says John Scroggin, an attorney with Scroggin & Co. in Atlanta. First-family heirlooms might be claimed by second-family children — in the worst case leading to lawsuits. You and your spouse can help by signing and dating a list of where important items should go and attaching it to your will.

If you leave everything to your spouse, you can’t be sure that your natural children will ever inherit any money. That’s because, after your death, the ties between stepparent and stepchildren might fray. Your spouse’s children will murmur, “You haven’t seen Freddie for 10 years — why leave him 30 percent of the estate?”

To preserve inheritances, it helps to leave money for children in trust, with income to the spouse for life. Still, the spouse can effect changes. “In real life, the survivor wins,” says Martin Kurtz, a financial planner at the Planning Center in Moline, Ill.

Memo to self: Discuss options with a lawyer. Memo to children and stepchildren: Keep in touch.

(Originally published in The AARP Monthly Bulletin.)

AARP Article

What Happens to Your Debt When You Die

Know what you owe and what you don’t

Almost everyone dies owing at least some debt. Sometimes it’s only last month’s ordinary bills plus final medical expenses. But there can be shocking surprises for survivors — debts unknown to the children and even to the spouse of the deceased. Heirs might discover large credit card balances, undisclosed home equity loans or gambling debts.

Creditors are entitled to payment, from the money and property (the “estate”) that your loved one left behind. But what if he or she didn’t leave enough to get everyone repaid? Can the creditors come after you?

Sometimes yes, sometimes no. With loans secured by property, such as mortgages, an heir has to keep up the monthly payments or else sell the property to cover the debt. Unsecured loans, such as credit card debt and student loans, are another matter. Your liability depends very much on the nature of the bill, the type of property and your state’s laws. But here’s what I can say, generally.

  • Some money is protected. At death, unsecured creditors cannot collect from life insurance payments, pay-on-death bank or brokerage accounts, jointly held property that passes directly to the surviving owner, or retirement plans such as 401(k)s and IRAs that have named beneficiaries, says IRA expert Ed Slott of IRAhelp.com. They’re safe — but only if they were handled right. By “right,” I mean that the deceased filled out a beneficiary form for each account, naming the people who were to inherit. If this step was skipped, the funds will be paid into the estate, where they can be used to satisfy the creditors.
  • Your signature matters. If you signed a joint application for a credit card, you owe the balance even if you didn’t know how high it had grown. If you were merely an “authorized user,” however, most states don’t require you to pay. (Note that authorized users shouldn’t use the card after the owner dies if the estate is broke. Such spending could be considered fraud.) Spouses are generally not liable for any separate debts their mate incurred before the wedding or, in most cases, after. Rules in community property states, such as Texas and California, are different. Your community property can generally be tapped to pay a spouse’s debts. But creditors can’t take your separate property, says Cathy Moran, an attorney in Mountain View, Calif. In any state, you’ll still owe any private debt you cosigned with the deceased, such as a student loan. Some private student lenders will forgive the loan, but most won’t.
  • You have to pay the doctor. Final medical bills are usually considered a spouse’s responsibility. If your mate entered a hospital, the admission papers you signed probably included a payment agreement. When there’s no money, however, and the survivor has very little income, health providers might write off the account.
  • Get tough. Don’t be talked into making a few payments on bills you do not owe. Creditors might claim that you willingly assumed the debt. Tell them, “No, no, never.” You know your rights. 

(Originally published in The AARP Monthly Bulletin.)

AARP Article

Investing If You’re Nervous

What to buy when the payoff you need is peace of mind

What should you do with your money if you’re deathly afraid of stocks and want to keep your capital safe? That’s a tough one. No-risk investing comes at a cost. You’re giving up the opportunity to make your retirement savings grow. Low-cost, broad-market index funds from companies such as Vanguard, Fidelity or Schwab will grow nicely over time if you leave them alone.

But your personal anxiety takes precedence over third-party financial advice. So, as a secondary goal, try to grow your savings at something close to the inflation rate. At this writing, both the principal consumer price index and the special index reflecting older Americans’ expenditures are rising at the rate of 2.9 percent. That’s the investment return you would need to preserve your purchasing power.

First choice, for people seeking safety first, is often a high-rate, federally insured bank certificate of deposit. One-year CDs with low minimum deposits are paying roughly 2.5 percent, according to Bankrate.com. For 3 percent, you have to deposit your money for five years. These rates are generally available only at online banks, such as Barclays and Capital One 360. Local banks might pay closer to the national average of 0.72 percent for one year and 1.29 percent for five years.

Even though these insured CDs may slowly lose purchasing power, they preserve the face value of savings, so you’re never alarmed when the financial world contracts. They’re also a good choice for people with smaller nest eggs—say, $50,000 or less—who can’t afford to take risks.

An option that pays a bit more than these CDs is what’s known as a multiyear guaranteed annuity. It’s a simple product with no links to stock-market indexes. You invest your money with an insurance company (minimums typically range from $2,500 to $100,000). In return, you get a fixed rate of interest for a specified number of years—usually at least three. You pay taxes on earnings only when you withdraw them. You can usually take out a certain amount of money each year, penalty free, although insurers will charge you penalties for quitting annuities early. Currently, five-year investments pay from 3 percent to 4 percent, and three-year investments from 2.5 to 3 percent. (For a list of multiyear guaranteed annuities, go to ImmediateAnnuities.com.)

You might get even more money over the long term from mutual funds invested in bonds. Their return isn’t fixed. As interest rates rise, the market value of these funds declines. But there’s a silver lining: As rates rise, the funds’ managers will buy new bonds that pay higher rates. So the income produced by a bond fund will rise too. Assuming that you leave that income in the fund, you’ll be buying new shares at higher yields, and all your shares will rise in value the next time interest rates decline. Current yields on general intermediate-term bond funds are running in the neighborhood of 3.4 percent, and blue-chip corporate bonds at 4 percent.

Warning: Don’t fall for fancy investments promising above-market rates. That always means risk. 

(Originally published in The AARP Monthly Bulletin.)

AARP Article

The Spousal-Benefits Puzzle

Social Security can be as complicated as marriage

What do I get the most mail about? Winner by a mile is the question of when to file for spousal (or divorced spousal) benefits. Lots of you misunderstand the rules, with the result that you’re leaving money on the table.

So here is your guide to spousal benefits. I’m writing from the point of view of a wife filing on her husband’s earnings record, but the same rules apply to either spouse.

First, what is a spousal benefit?

It’s a payment originally designed for women who left the workforce to raise children. You need 10 years of work (40 quarters) to claim a retirement benefit of your own. If you worked less (or not at all), or your earnings were very low, you can get a spousal benefit based on the earnings of your husband.

How much is the spousal benefit?

It depends on your age when you claim it. If you wait until your full retirement age (somewhere between 66 and 67), you’ll get half of what your husband could get at his own full retirement age. If you claim earlier, you’ll receive less.

What if you worked 10-plus years and earned a Social Security retirement benefit of your own?

Here’s where claiming gets tricky. If your husband has not retired, you can file for a benefit based on your personal earnings. When he finally quits work and goes on Social Security, the spousal amount you can receive depends on your personal benefit’s size. If it’s higher than what you’d get as a spouse, you’ll continue to receive that same, higher amount, says Philip Moeller, coauthor of Get What’s Yours: The Secrets to Maxing Out Your Social Security. If your personal benefit is smaller, it will be topped up to the spousal level.

If you file when your husband has already retired, Social Security will normally assume that you’re claiming your personal and your potential spousal benefit at the same time. You will receive the higher of the two.

There’s an exception for people who were born on or before Jan. 1, 1954. If you put off your claim until full retirement age, you can file a “restricted application” for a benefit based on your spouse’s earnings, without also claiming the personal benefit you’re owed. At age 70, you can switch to your personal benefit, which will have grown at 8 percent per year plus the inflation rate.

What if you’re divorced?

You get the same benefits as a current spouse, if your marriage lasted at least 10 years and you are now single. Also, you can claim the spousal benefit even if your ex has not retired, provided that he is eligible for benefits and you have been divorced for at least two years. If you’ve been working, however, you will probably find that sticking with your own benefit is the better deal.

Special rules cover the disabled or retirees with children who are under 18. But for most of you, this road map works.

(Originally published in The AARP Monthly Bulletin.)