Today’s column addresses questions about whether and when Social Security will fix problems with benefit calculation for those born in 1960, effects of the earnings test on survivor’s benefits and qualifying for divorced spousal 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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Will Congress Fix Social Security’s Benefit Calculation Problems For People Born In 1960?
Hi Larry, I was born in 1960. I was hoping federal legislation was going to address the Social Security formula that was impacted by the economic downturn in 2020. Some news stories estimated people born in 1960 would get far less Social Security because of the poor economy in 2020. Do you have any knowledge of federal legislation helping those born 1960? Did legislation pass or is it pending? Thanks, Juan
Hi Juan, To clarify your question for other readers, I’ll start with a brief explanation. Social Security retirement benefits are based on an average of a person’s highest 35 years of Social Security covered wage-indexed earnings. Indexing converts a person’s historical annual earnings to amounts more reflective of current day dollars. For example, a person born in 1959 who earned $20,000 in 1991 would have those earnings indexed to an amount close to $50,000 when calculating their Social Security retirement benefit rate.
Worker’s earnings histories are indexed based on the average wage index (AWI) in the year they reach 60. So the AWI in 2020 will be used to calculate the retirement benefit rates for people born in 1960. And if the 2020 AWI is lower due to the pandemic, the historical indexed earnings amounts and the resulting benefit rates for people born in 1960 will also be lower.
I think it would be hard to for Congress to finalize any legislation intended to address this issue at the present time. Retirement benefit rates for people born in 1960 can’t be precisely calculated until the 2020 AWI is determined, and that amount won’t be known until later this year. In other words, it’s difficult to fix a problem until you find out how much of a problem there actually is.
I strongly believe that congress will take action to address the benefit calculation problems caused by the pandemic. In fact, there are already congressional bills in the works to address this situation. Whether or not your benefit estimate shown on Social Security’s website turns out to be accurate depends on the eventual amount of the 2020 AWI, and what action is taken by congress to address the issue. Best, Larry
Am I Right That I Can Start Survivor Benefits When I Reach Age 66 And Not Be Subject To The Earnings Test?
Hi Larry, I’m a little confused about applying for survivors benefits in my age range. I am a widow who will be 66 next March. My Social Security FRA is four months after that. I currently earn too much to receive either my retirement or survivor’s benefits this year or last. Am I correct that I can start survivor’s benefits at 66 and not be subject to the earnings test because of the lower age threshold for the 100% widow’s benefit rate? I could then continue to work and depending on the numbers, claim my retirement benefits at 70. Thanks, Debra
Hi Debra, That’s not actually correct in your case. Although the full retirement age (FRA) for widow’s benefits can be up to four months earlier than a person’s FRA for retirement benefits, the Social Security earnings test continues to apply until the month they reach FRA for retirement benefits. For people born in 1956, FRA for widow’s benefits is the month they reach age 66, but their FRA for retirement benefits is the month they reach age 66 and four months.
So if you reach 66 and four months in July 2022, your benefits could be subject to being withheld due to the earnings test until July 2022 even though your FRA for widow’s benefits is March 2022. However, note that a higher earnings test exempt amount would apply for you in 2022, and Social Security would only count the amount that you earn prior to July 2022. Whether or not you might be able to be paid any widow’s benefits prior to July 2022 would depend on the amount of your widow’s benefit rate and your expected earnings from January through June of 2022.
Even is you were going to earn a million dollars in 2022 though, you could still be paid benefits starting with July 2022 when you reache her FRA for retirement benefits. I don’t have enough information to know whether or not you could be paid any benefits prior than July 2022, but you may want to consider using my company’s software — Maximize My Social Security or MaxiFi Planner — to fully analyze your options in order to make sure you choose the best possible 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
Do I Qualify For Divorced Spousal Benefits?
Hi Larry, I was married for 10 years before we got divorced and I remarried. He also remarried. Can you tell me if I qualify for benefits based on his Social Security record? Thanks, Talia
Hi Talia, The fact that your ex-spouse has remarried wouldn’t have any adverse effect on your ability to qualify for divorced spousal benefits. However, you must be unmarried to potentially be able to qualify for divorced spousal benefits on the record of a your ex-spouse.
So if you’ve remarried, you couldn’t qualify for benefits on your ex’s Social Security record for the duration of your remarriage. If your ex is actually deceased, you may be able to qualify for divorced widow’s benefits, but only if you remarried at or after 60. Best, Larry