Ask Larry: How Will Lower Income Affect My Social Security Benefit Amount?

Today’s Social Security column addresses questions about how earning less money before filing can affect benefit rates, how survivor benefits are calculated if the record holder had not yet filed and whether or not to suspend a benefit at FRA. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc.

See more Ask Larry answers here.

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

How Will Lower Income Affect My Social Security Benefit Amount?

Hi Larry, I am 52 and have full credits for Social Security. I have been at my present job for 26 years but am considering moving to a lower paying job. Would doing so affect my Social Security retirement benefit rate when I retire? Thanks, Sydney

Hi Sydney, Social Security retirement benefits are based on an average of a person’s highest 35 years of Social Security covered wage-indexed earnings. If you have fewer than 35 years of covered earnings, zero earnings years are included in the average. That of course lowers the average earnings and the resulting benefit rate.

How much, if any, taking a lower paying job would affect your eventual Social Security benefit rate depends how many years of covered earnings currently have, and how your new earnings would compare to your earnings in previous years.

For example, let’s say Bill has 35 years of Social Security covered earnings, and his countable average earnings in those years amount to $20,000. If Bill stops work or takes a lower paying job, it wouldn’t affect his Social Security benefit rate at all. Social Security would simply calculate Bill’s benefit rate using the 35 years of covered earnings he already had before he stopped or reduced his work.

However, if Bill has fewer than 35 years of earnings, then additional years of earnings would raise Bill’s benefit rate regardless of how much he earns. That’s because the new years of earnings would be replacing zero earnings years in the calculation of his benefit rate. And the more Bill earns in those years, the more his rate would increase, so taking a lower paying job would result in less of an increase than if Bill had continued working at a higher paying job.

The bottom line is that if your future year earnings are among your highest 35 years of Social Security covered wage-indexed earnings, then the more you earn in those years the higher your benefit rate will be.

You may want to consider using my company’s software — Maximize My Social Security or MaxiFi Planner — to calculate how your future earnings would affect your benefit rate and to ensure your household receives the highest lifetime benefits. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Our software can also confirm your correct benefit amount, ensuring you aren’t being paid too little or too much, which could lead to potential clawbacks due to Social Security’s overpayment to you. Best, Larry

If I Die Before Applying For Benefits Can My Wife Draw Her Own Benefits Until Her FRA And Then Switch To My Higher Amount?

Hi Larry, My wife is 63 and she started her retirement benefits at 62. I am also 63 and I am waiting until 66 and 10 months to take mine. I have the larger amount and hers is more than 1/2 of mine. If something was to happen to me before I reach FRA, say at 65, can my wife continue to collect her retirement until I would have reached FRA and then switch over to the amount I would receive at FRA and give hers up? She is four months older than me so she would have already reached her FRA by then. Thanks, Tim

Hi Tim, Yes. Technically though, your wife wouldn’t be able to give her retirement benefits up and draw just
just
a widow’s benefit instead. What would happen is that she’d continue to collect on her own record and she could then file for an unreduced excess widow’s benefit when she reaches her full retirement age (FRA). Her own benefit plus her excess widow’s rate would then add up to your full primary insurance amount (PIA), which is equal to the amount you would have collected if you had started drawing your benefits at FRA. Best, Larry

Do Either My Wife Or I Need To Suspend Our Benefits?

Hi Larry, I’ve previously read your comments regarding suspending benefits at FRA. My wife will reach FRA in August and I am 63. I intend to apply for benefits at 70 and am the higher earner. Do either of us need to suspend? I wasn’t going to apply until 70. Should we be concerned about deeming also as someone told me that there were changes during the last federal tax changes that seems to extend deeming past FRA through age 70? Thanks, Clark

Hi Clark, You don’t mention whether or not your wife is drawing benefits, but assuming she’s not then there would be no reason for either of you to suspend your benefits when you reach full retirement age (FRA). You can earn delayed retirement credits (DRCs) if you defer collecting your benefits after you reach FRA, regardless of whether you file for and suspend your benefits or by simply waiting past your FRA to claim your benefits. And filing for and suspending benefits at FRA could adversely affect your or your wife’s ability to collect survivor benefits if one of you dies unexpectedly.

I don’t understand what your specific concern is with regard to deeming. There haven’t been any changes in the Social Security law with regard to deeming since the Bipartisan Budget Act of 2015. Basically since both you and your wife were born after 1/1/1954, neither of you could apply for spousal benefits without being required to apply for your own benefits at the same time due to deeming. Best, Larry