Economic Security Planning, Inc.
Today’s column addresses questions about how continuing income can potentially increase benefit rates, whether delaying the last six months before turning 70 would really be worth it and what happens to Social Security disability benefits approaching full retirement age. 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.
Who’s Right, Me Or The Social Security Employee I Spoke With?
Hi LarryI just got off the phone with our local Social Security office. I explained to the agent that I have continued working after retirement, and the last few years I saw an increase in my Social Security retirement benefit payment because, for instance 2018 displaced one of the 35 years Social Security used to arrive at my current payment.
The agent told me that was not true, that once I retired whether I continued to work or not, my benefit was not recalculated but was locked in and that what I was seeing was a cost of living increase. The reason I called him was I had not seen an increase this year even though my 2019 income was higher than my 2018 income.
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So who is right? Thanks, Tomás
Hi Tomás, You are correct and what you were told is not at all true. As long as you continue to work for Social Security covered earnings, those earnings can be used to potentially increase your benefit rate.
Social Security retirement benefits are based on an average of a person’s highest 35 years of Social Security covered wage-indexed earnings, so additional years of earnings only increase a person’s benefit rate if they’re higher than one or more of the 35 years currently being used to calculate the person’s benefit rate.
Assuming that you’re right about your 2018 earnings being among your highest 35 years of earnings, then your 2019 earnings would almost certainly result in a benefit rate increase if they were higher than your 2018 earnings.
Benefit rate recomputations are done automatically by Social Security, and they normally do the earnings recomputations in the fall of each year. I don’t know if that process may be delayed this year due to the pandemic, but you shouldn’t need to do anything to initiate a recomputation of your benefit rate.
Optionally, though, you could submit a written request for a manual recomputation to your nearest Social Security office using a form SSA-795. If you do that, you should also send a copy of your 2019 W-2 form(s), or a copy of Schedule SE from your 2019 tax return if you were self-employed. Best, Larry
Is It Wise To Collect Early When I Am So Close To Age 70?
Hi Larry, I am currently receiving a spousal benefit on my husband’s record of about $1,200 and turn 70 in June 2021. Would it be wise to collect my own retirement benefit of about $1,850 six months early at 66.5 to receive $708 per month more from now to June?. In June at 70 I will receive about $1,900. I believe it will take a little over six years to break even.
Is this wise to collect early when I am so close to 70? I am in excellent health and don’t see any issues with a short retirement. Thanks, Julie
Hi Julie, Waiting until the month you reach 70 to claim your retirement benefits is probably your best bet, but other factors such as your spouse’s health, his age, and when he started drawing his benefits could affect your decision. All things being equal, though, waiting until 70 is likely your best option.
Starting to draw your own benefits six months prior to 70 would mean receiving a 4% lower benefit rate for as long as both you and your spouse are living. However, assuming that your spouse’s monthly benefit rate is higher than your own rate, you would receive his higher rate instead of your own in the event of his death.
That’s why his age and health are factors in your decision. And his age at the time he started drawing his benefits would affect both his benefit rate and your potential widow’s rate.
You may want to consider using my company’s software — Maximize My Social Security or MaxiFi Planner — so you can understand and explore potential filing strategies and choose the one that works best for you. 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 Disability Benefits Change At All When I Turn 65?
Hi Larry, I turn 65 next month. Will my SSDI benefits change at all? I also receive a pension. Will anything change next year like it did when I turned 62? Thanks, Patrick
Hi Patrick, Nothing will change when you turn 65. Since you were apparently born in 1956, your full retirement age (FRA) is age 66 and four months. At that time, your Social Security disability (SSDI) benefits will automatically convert to regular Social Security retirement benefits, but that almost certainly won’t result in any change in your benefit rate.
Some pensions can affect Social Security benefits if you didn’t pay Social Security taxes on the earnings your pension is based on, but pensions based on Social Security covered earnings don’t have any effect on a person’s benefits. Even if you’re receiving a pension that does affect your Social Security benefit rate though, it would have the same effect on your Social Security retirement benefits as it did on your SSDI benefits. Best, Larry