Ask Larry: How Do Work And Social Security’s Earnings Test Affect Retirement Benefits?
Today’s column addresses questions about the earnings test, working and filing early, withdrawing a benefit after filing for it and proving marriage to and divorce from a deceased ex-spouse. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc, which markets Maximize My Social Security and MaxiFi Planner.
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If My Wife Files Early And Continues Working, How Is Her Benefit Calculated At FRA?
Hi Larry, My wife’s birthday is in 1955. She had three surgeries earlier this year. She previously earned approximately $70,000. We considering starting her Social Security retirement benefits which would be approximately $2,800.
I retired three years ago and started my retirement benefits when I turned 66 last year and receive about $2,150 plus my pension plus work part time as a school bus driver. I understand about the earnings test and that for my wife approximately $550 withheld each month based on her income, right?
So if we applied for her retirement benefits how is it calculated at her FRA? Thanks, Nelson
Hi Nelson, Actually, it sounds like you don’t fully understand how the earnings test works. If a person earns more than the Social Security earnings test exempt amount, Social Security withholds the person’s full monthly benefits for as long as it takes to withhold the required amount. They don’t prorate the amount to be withheld into a monthly rate.
For example, say Sue files for her Social Security retirement benefits effective with March 2021. Sue was born in October 1955, so she’ll reach her full retirement age (FRA) in December 2021. Sue will continue working and will earn a total of $70,000 in 2021, but Social Security will only count the amount that Sue earns from January through November. There is no limit on how much Sue could earn and still be paid all of her benefits starting with her FRA of December 2021.
Let’s say Sue’s 2021 earnings through November will be $66,480, which is more than the $50,520 that is exempt under the earnings test for people reaching FRA in 2021. Sue’s excess earnings would then be $15,960, and Social Security would need to withhold $5,320 of Sue’s benefits (i.e. $1 of benefits for each $3 of Sue’s excess earnings). Sue’s reduced rate for claiming her benefits nine months early in March 2021 is $2,660. In order to withhold the $5,320 of Sue’s benefits required by her earnings, Social Security would withhold Sue’s full benefit payments for March and April of 2021. Sue would then be paid her full reduced benefit rate of $2660 for May 2021-on.
After Sue reaches FRA, Social Security would adjust her permanent benefit rate to remove the percentage reduction previously applied for any months that Sue’s benefits were withheld due to the earnings test. Since two months of Sue’s benefits were withheld prior to her FRA, her benefit rate would then be adjusted from $2,660 to $2,691. In other words, Sue’s benefit rate would only be permanently reduced for the seven months that she was actually paid benefits prior to her FRA.
I should point out that if your wife files for her benefits early, it will limit the amount that you could be paid as a survivor if she dies before you. If your wife dies before you, you could be paid up to the higher of your own benefit rate or her benefit rate.
So if your wife’s rate is reduced for starting her benefits early, that reduction would carry over to your potential benefit rate as a widower. It sounds like you and your wife may want to consider using my company’s software — Maximize My Social Security or MaxiFi Planner — to fully analyze your options so that you can choose the best possible strategy for maximizing your benefits. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry
Does My Sister Have An Option To Stop Or Delay Her Social Security Up To A Year From Her Initial Claim?
Hi Larry, My sister, 62 in September 2020, started claiming Social Security retirement benefits in late 2020 and went back and forth on what the amount was and how much she can work to not have the earnings deduction. Does she have an option to request stopping or delaying her retirement benefit, up to a year from her initial claim? Thank, Rosemary
Hi Rosemary, Your sister couldn’t choose to voluntarily suspend her benefits anytime prior to the month in which she reaches full retirement age (FRA).
However, she would be allowed to withdraw the application she filed anytime up to 12 months after the first month she originally claimed her benefits. However, she would need to return any benefits she’s collected before her withdrawal request could be approved. And she couldn’t then reclaim benefits starting any earlier than the month in which she reapplies for benefits. Best, Larry
Does It Sound Like I Will Receive My Widow’s Benefits?
Hi Larry, I have an appointment with Social Security for widow’s benefits. I was married from 1998 to 2008. They told me all I’ll need to file is my marriage certificate bank information for the call. Do I need anything else and does it sound like I may receive my widow’s benefit? Thanks, Pat
Hi Pat, There isn’t enough quite information in your question for me to be able to tell for sure you whether or not you qualify for benefits. It does sound like you meet the 10 year duration of marriage requirement for surviving divorced spousal benefits, though.
Since you were apparently divorced prior to your ex-husband’s death, you’ll need to prove to Social Security that you were married for at least 10 years. So in addition to proof of your marriage you’ll almost certainly need a certified copy of your divorce decree.
Sometimes you are also required to submit proof of age (e.g. birth certificate), but only if there’s an age discrepancy in your records. If you’re filing by phone, the representative to whom you speak will let you know exactly what evidence is needed in your case. Best, Larry