Ask Larry: Will Social Security Properly Include My 2020 Earnings?

Today’s column addresses questions about when Social Security will recognize recent high income, what happens to benefit checks received in the month a person passes away and how the Windfall Elimination Provision (WEP) can affect 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.

See more Ask Larry answers here.

Have Social Security questions of your own you’d like answered? Ask Larry about Social Security here.

Will Social Security Properly Include My 2020 Earnings?

Hi Larry, I turn 70 this month and am still working. I am sure that 2020 will be among my highest earnings years. Will Social Security have my income info from 2020 available to them in time to use in the calculation of my benefit? I was told that I will not be eligible for my first Social Security check until March. Will the system properly include my earnings from last year? Thanks, Jim

Hi Jim, First note that if you turn 70 in January, you’ll want to start your Social Security retirement benefits effective no later than January. That’s the payment that Social Security normally pays in February, since they pay benefits a month behind.

Back to your question, though: Social Security won’t receive proof of your 2020 earnings until your W-2 form is issued, or until sometime after you file your tax return for 2020 if you’re self-employed.

If you apply for your benefits before evidence of your 2020 earnings is available, Social Security will initially calculate your benefit rate based on your earnings history through 2019. But after they receive proof of your 2020 earnings, they will recalculate your benefit rate to include those earnings, and they will pay you any back pay that you’re due.

Those types of automated earnings recomputations are generally performed annually in around August or September.

So your options are a) delay filing your application until you can submit evidence of your 2020 earnings to Social Security, in which case your initial payment will likely be delayed, or b) apply before proof of your 2020 earnings is available, in which case your benefit rate will initially be calculated without using your 2020 earnings.

Either way, you’ll end up getting the same total amount of benefits in the long run. Best, Larry

Is It Correct That My Husband’s Check Received In December Can Be Kept?

Hi Larry, My husband died in early October. It is my understanding that the check we got on in December was for November. If so, Social Security would not take those funds back. But we would not get a check in January for December — is that correct? Thanks, Sally

Hi Sally, I’m sorry for your loss.

You’re correct that your husband’s payment received in December is for the month of November, and therefore he was eligible for that payment. However, since the payment was issued after your husband’s death, the bank may return it to the Treasury department. If that happens and if you’re not eligible for widow’s benefits, you may need to complete a form to get that payment reissued to you.

If your husband was receiving his checks in the mail, then you’d have to return the check paid in December and complete and submit the appropriate form to have it reissued.

If you haven’t already done so, you should notify Social Security of your husband’s death so that they can get his payments stopped. You also may need to apply for widow’s benefits and/or the $255 lump sum death benefit, and you can make arrangements to do that by contacting Social Security. Best, Larry

Will I Be Able To Collect Social Security?

Hi Larry, I receive a state of Illinois pension (SURS) and am eligible for federal pension July 2021 when I turn 62. How is my Social Security affected by this? I have 14 credit years with Social Security. Thanks, Marc

Hi Marc, If you have at least 40 calendar quarters (QC) of Social Security credits, you’ll be eligible for Social Security retirement benefits as early as age 62.

However, if you’re also receiving a pension based on your work and earnings that weren’t subject to Social Security taxes, your Social Security retirement benefit rate will almost certainly be reduced due to the Windfall Elimination Provision (WEP).

The WEP can cause a person’s Social Security retirement benefit to be calculated using an alternate, less generous, computation formula than the normal formula that’s used to calculate retirement benefit rates.

Our software — Maximize My Social Security or MaxiFi Planner — is fully programmed to handle benefit computations involving the WEP. It also accounts for the Government Pension Offset, which can affect spousal and survivor’s benefits.

You may want to consider using the software to calculate your projected benefit rate and analyze the filing options so that you can determine the best 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