Economic Security Planning, Inc.
Today’s column addresses questions about the earnings test, spousal benefits at full retirement age, working for a short time at a job not taxed by Social Security, filing a restricted application for divorced spousal benefits and whether filing for a benefit before FRA is required. 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 I Get My Benefits Every Month If I Reduce My Earnings This Year?
Hi Larry, I am 63 and collecting my widow’s benefit. I only collect six months out of the year. This year I will only get 45% of the salary I brought home last year. Will I start collecting every month from Social Security instead of six months out the year? Thanks, Michelle
Hi Michelle, The answer to your question depends on how much you earn this year. In 2020, you can earn up to $18,240 and still be paid all of your Social Security benefits throughout the year. If you earn more than that amount, Social Security will need to withhold $1 of your benefits for each $2 that you earn in excess of the limit.
Whether or not you’ll be able to draw all of your benefits this year will depend on whether or not your earnings exceed the Social Security earnings test exempt amount for this year. However, once you reach your full retirement age (FRA), you’ll be able to receive all of your benefits regardless of how much you earn. Best, Larry
If I Wait Until FRA To File, Can I Draw Spousal Benefits?
Hi Larry, My wife and I are 60 years old. I am the primary income earner and could draw $2,000 in Social Security retirement benefits starting at 62 based on my earning history. My wife can draw $700 at 62 based on her earning history. If I want to wait until my FRA to file, can I draw a spousal benefit based on my wife’s earning history and if so, how would this affect the amount of my Social Security retirement benefits I would receive at FRA? Thanks, Carl
Hi Carl, Since both you and your wife were born after 1/1/1954, neither of you could file for spousal benefits without also being deemed to be filing for your own retirement benefits at the same time. The result would be that you would basically just receive the higher of those two benefit rates, and your benefit rate would be reduced for age if you start drawing prior to your full retirement age (FRA).
You and your wife can use one of my company’s software applications — Maximize My Social Security or MaxiFi Planner — to explore and compare all of your filing options so that you can determine the best way to maximize 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
How Will My Social Security Be Affected If I Work For 3 To 6 Years In Employment Not Covered By Social Security?
Hi Larry, I am 64 and plan to work for another 2–4 years or maybe up to six years maximum. I have never worked in a government position before. I am interviewing for a position covered under OPERS that won’t be taxed by Social Security. I will most likely retire before achieving five years of vesting in OPERS. Financially, how bad is that decision?
Will taking this job reduce the amount of my Social Security benefit at full retirement age because I am not contributing to Social Security for the last 3–6 years of my career? Will there be other impacts on my Social Security benefits? Thanks, Clay
Hi Clay, As long as you don’t end up receiving a pension or a lump sum distribution in lieu of a pension based on your work that is exempt from Social Security taxes, your Social Security benefit rate will not be affected by the Windfall Elimination Provision (WEP). Even if you did receive a non-covered pension, though, you would be exempt from any WEP reduction if you have at least 30 years of Social Security covered earnings of substantial earnings as defined by the WEP provision.
If you do end up receiving a pension based on your work that’s exempt from Social Security taxes, it would cause your Social Security benefit rate to be reduced unless you meet an exception to WEP. WEP results in an alternate, less generous, benefit calculation method to be used in computing a person’s Social Security retirement benefit rate. However, there is a WEP guarantee provision that limits any reduction to a person’s benefit rate to basically no more than half of the person’s non-covered pension amount.
Aside from WEP, as you mentioned your earnings from work where your wages are exempt from Social Security taxes can’t be used in the calculation of your Social Security benefit rate. Any such earnings would count for earnings test purposes, though, so if you claim Social Security benefits prior to full retirement age (FRA), your earnings could result in some or all of your benefits being withheld until you reach FRA depending on how much you earn. Best, Larry
Am I Allowed To File For Benefits On My Ex’s Record At FRA And Allow My Own Benefit Rate To Grow Until Age 70?
Hi Larry, I was born in 4/1954. I was a stay at home mom until I divorced in 2009 after being married 35 years. I have been working for 10 years and am eligible to collect $799 at my FRA of 66 in April. My divorced spousal benefit at 66 will be $1,060. I have been told by two Social Security call center persons that I can start collecting my divorced spousal benefit in April and let mine grow until I’m 70. But according to what I read on the Social Security website, I missed that option having been born after 1/1/1954. I even read the paragraph to one of them. She said that doesn’t apply to me because l am waiting until FRA to collect. Can you clarify this for me? Thanks, Marlena
Hi Marlena, Assuming that your ex is still living, it sounds like you were misinformed by the Social Security representatives you spoke with. Only people born prior to 1/2/1954 are allowed to file for spousal or divorced spousal benefits without also being deemed to file for their own Social Security retirement benefits at the same time. So regardless of when you apply for benefits, you’ll be deemed to be filing for both divorced spousal benefits and your own Social Security retirement benefits. The result would be that you would then only receive basically the higher of the two benefit rates, and your benefit rate would be reduced for age if you start drawing prior to your FRA.
However, if your ex is deceased and if you haven’t yet claimed your Social Security retirement benefits, you could then file for surviving divorced spousal benefits while allowing your own benefit rate to grow until 70. In fact, you could even file for survivor benefits prior to your FRA without being deemed to be filing for your own benefits, but your benefit payments could then be subject to full or partial withholding until you reach FRA depending on how much you are earning. Best, Larry
Is It True That My Friend Doesn’t Need To File For Widow’s Benefits Now?
Hi Larry, I’m not sure if Social Security provided my friend with the correct information. Her husband passed away at age 58 and never collected Social Security benefits. She turned 60 in May 2019 and is working and intends to keep working to FRA. She earns more than the $18,240 earning threshold. Social Security has told her she does not need to file for widow’s benefits now, but that she can do so at FRA and will receive 100% of his benefit.
Is it true she does not need to file now? At FRA, does her widow’s benefit get added to her Social Security retirement benefit? Is it a lump sum or paid over time? Is the amount calculated from his date of death? Thanks, Eliana
Hi Eliana, Your friend isn’t required to file for widower’s benefits now, and if she does so her benefit rate will be reduced for age and her benefit payments could be subject to full or partial withholding depending on how much she earns.
Your friend will never be able to draw both her own Social Security retirement benefits and a full widower’s benefit at the same time. The most that she could be paid is the higher of those two benefit amounts. However, she could potentially file for one type of benefit initially, and then switch to drawing the other benefit at a later date.
It sounds like your friend’s best filing strategy would almost certainly be to either file for reduced widow’s benefits now or as soon as her earnings will permit at least some benefits to be paid, then switch to her own record at 70, or to file for reduced retirement benefits on her own record at 62 or as soon as her earnings will permit at least some benefits to be paid, then file for unreduced widow’s benefits at her full retirement age (FRA). Normally, your friend would want to start out drawing the lower benefit first and then switch to the higher record when it reaches its highest potential rate. Best, Larry