Ask Larry: Will No Longer Paying Into Social Security At 59 Lower My Benefit At 67 Or 70?
Today’s column addresses questions about what stopping work a number of years before filing means for later Social Security retirement benefit amounts, whether spousal benefits automatically convert to retirement benefits at 70 and how the earnings test can affect early survivor benefits. 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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Have Social Security questions of your own you’d like answered? Ask Larry about Social Security here.
Will No Longer Paying Into Social Security At 59 Lower My Benefit At 67 Or 70?
Hi Larry, I retired last year at 59. If I’m no longer paying into Social Security, will my benefit start to reduce each year until I reach 67 or more if I delay till 70? Thanks, Frank
Hi Frank, Your benefits won’t be lower because you stopped working a number of years before claiming, but if continuing working would have increased them, that of course won’t happen if you’re no longer working.
Social Security retirement benefits are calculated based on an average of a person’s highest 35 years of Social Security covered wage-indexed earnings. And stopping work would neither lower your future benefit rate or raise it. It would just mean that you wouldn’t be able to increase your rate by replacing earlier years of lower earnings with future years of higher earnings.
How much if any of an effect stopping work would have on your benefit rate depends on how much you earned in your previous 35 highest wage-indexed earnings years, and how much you would have been earning had you not stopped working.
Regardless though, if you wait until your full retirement age (FRA) to start drawing your benefits, then no age reduction will be applied to your benefit rate and you’ll be paid 100% of your primary insurance amount (PIA). If you delay past your FRA, you’ll earn delayed retirement credits (DRCs) at a rate of 8% per year or 2/3 of 1% per month.
You may want to consider using my company’s software — Maximize My Social Security or MaxiFi Planner — to do your Social Security planning. The software allows you enter projected future year earnings, which would enable you to determine what difference, if any, returning to work would have on your future benefit rate. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry
Will My Wife’s Spousal Benefits Automatically Change To Her Own Benefits At 70?
Hi Larry, Will my wife’s spousal benefits automatically change to full benefits at 70 or does she need to contact social security in advance? Thanks, Matt
Hi Matt, Your wife can’t be paid her retirement benefits until she applies for them. The only way that your wife could be collecting just spousal benefits only is if a) she was born prior to 1/2/1954, b) she filed for spousal benefits at her full retirement age (FRA) or later, and c) she restricted her application for spousal benefits to exclude her own benefits from the scope of her application.
herefore since your wife has apparently never applied for her own benefits, she couldn’t be paid those benefits unless and until she applies for them.
Social Security allows people to apply for benefits up to four months in advance of the month that they want to claim them, but you can also file as late as six months after the month you want to start your benefits if you’re at least six months over FRA when you apply. So if your wife wants to claim her benefits effective with the month she reaches 70, she could file her application anytime from four months prior to that month to six months after that month. Best, Larry
Can I File For Survivor Benefits At 60 And Continue To Work?
Hi Larry, Can I file for survivor benefits at 60 and continue to work? Is there an income that I cannot exceed before Social Security deducts from the benefit amount? I was married for more than 10 years before we divorced and he later passed away. Thanks, Teri
Hi Teri, You can potentially claim surviving divorced spousal benefits as early as 60, but if you earn too much, your benefits would be subject to full or partial withholding until you reach full retirement age (FRA). If you claim benefits before FRA, Social Security will withhold $1 of your benefits for every $2 that you earn above what’s called the exempt amount.
The exempt amount of earnings for 2021 for people who won’t reach FRA this year is $18,960. So whether or not you could be paid any benefits prior to FRA depends on how much you’re earning.
Your best filing strategy could be either filing for reduced widow’s benefits early and then switching to your own record at 70, or filing for reduced retirement benefits on your own record early and then filing for unreduced widow’s benefits at full retirement age (FRA). Normally, you would want to start out drawing the lower benefit first and then switch to the higher record when it reaches its highest potential rate. Best, Larry