Economic Security Planning, Inc.
Today’s column addresses questions about how income earned after filing can increase benefit rates, working and the earnings test while collecting a widow’s benefit and whether and how benefits can increase at FRA after withholdings due to the earnings test. 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.
See more Ask Larry answers here.
Have Social Security questions of your own you’d like answered? Ask Larry about Social Security here.
Will My Recent Income Increase My Social Security Retirement Benefit Amount?
Larry, I am at full retirement age and drawing my Social Security retirement benefit while working full time. However I’m making more money now than the last 35 years. When Social Security recalculates my earnings of that higher income, can you tell me about what formula they use so I can get an idea of how much that will increase my monthly benefit. Thanks, Kevin
Hi Kevin, Social Security’s retirement benefit formula is much too complex for me to summarize for you here.
How much your benefit rate might increase from your current and future higher earnings depends on a number of different factors. Earning for example $5,000 more than you did in past years wouldn’t necessarily increase your rate at all, because your Social Security retirement benefit rate is calculated base on your highest 35 years of Social Security covered wage-indexed earnings. Wage-indexing normally results in a person being credited with more than the amount that they actually earned in the years prior to the year they reached 60 when calculating their benefit rate. So even though your actual current earnings are higher than your past earnings, they may not be higher than the indexed amount you were credited with when calculating your current benefit rate.
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My company’s software — Maximize My Social Security or MaxiFi Planner — uses the same formula as Social Security uses to compute benefit rates and it allows you to plug in projected current and future earnings, so you may want to consider using the software to do your benefit calculations. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry
Am I Able To Collect Widow’s Benefits And Continue Working?
Hi Larry, I will be 62 this year. I am currently working part time. I am a widow, who recently remarried after 60. Am I able to collect widow’s benefits and continue working? Also, can I collect widow’s benefits and my own Social Security retirement benefit when the time comes? Thanks, Jen
Hi Jen, That depends on how much you’re earning. Remarrying after 60 wouldn’t prohibit you from collecting widow’s benefits, but if you earn too much, your widow’s benefits could be fully or partially withheld depending on how much you earn. For example, $1 of a person’s 2020 benefits would need to be withheld for each $2 that they earn in excess $18,240 this year if they’ll be under full retirement age (FRA) throughout the year 2020.
You can’t really collect both your own benefits and widow’s benefits simultaneously. You can basically only be paid the higher of the two rates, but if your own rate is lower than your widow’s rate and you file for both benefits, Social Security would pay you a) your own rate plus b) a partial or excess widow’s rate that would add up to c) your higher total widow’s rate.
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).
However, if your deceased spouse received reduced Social Security retirement benefits prior to his death, that could alter your optimal strategy. Also, if 50% of your current husband’s primary insurance amount (PIA) is higher than your own PIA, then you may be able to qualify for spousal benefits from his record. A person’s PIA is equal to their Social Security retirement benefit rate if they start drawing their benefits at full retirement age (FRA).
Normally, you would want to start out drawing the lower benefit first and then switch to the higher benefit when it reaches it’s highest potential rate. Best, Larry
Will I Receive Extra Money When I Reach FRA?
Hi Larry, I receive my Social Security retirement benefit now and still work. I have missed out on about $20,000 because this was deducted because I’m working. Will I receive extra monthly when i reach FRA?.
Hi, How much your benefit rate might increase when you reach full retirement age (FRA) depends on your benefit rate and the number of months that your benefits are withheld prior to FRA as a result of your earnings.
When you file for benefits prior to FRA, your benefit rate is reduced based on the number of months prior to FRA that you claim benefits. If you don’t end up being paid all of those benefits because you earn more than the Social Security earnings test exempt amount, Social Security removes the percentage reduction that was initially applied to your benefit rate for any months that you ended up not being paid. So because you didn’t receive all of your early benefits due to the earnings test, your benefit is reduced less than it otherwise would have been had you actually received all of your early benefits.
For example, say Bill’s FRA is 66 and he files for his benefits in the month he reaches 63. Bill’s primary insurance amount (PIA), which is the amount he’d receive if he started drawing at FRA, is $2,000. However, since Bill is filing three years early his rate is reduced by 20% to $1,600.
But if Bill earns more than the earnings limit and only ends up being paid for 18 months prior to FRA instead of 36 months, his benefit rate would be increased to $1,800 effective the month he reaches FRA. In other words, starting at FRA, the percentage reduction for age applied to Bill’s benefit rate would change from 20% to 10% because he only ended up receiving 18 months of benefits prior to FRA instead of 36 months. Best, Larry