Today’s Social Security column addresses questions about how deductions due to the earnings test can affect future benefit rates, whether to take spousal benefits at 62 and whether high earners should wait until 70. 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.
Will Social Security’s Earnings Deductions Affect My Future Benefit Rates?
Hi Larry, I retired at 62 and was penalized several years for earning over the income limit. Will the four years of earnings deductions affect my future payment amount? Thanks, Steve
Hi Steve, The short answer is yes, assuming that you were receiving Social Security retirement benefits. If a person claims Social Security retirement benefits prior to their full retirement age (FRA) and if some of their benefits are withheld due to the Social Security earnings test, then their benefit rate is recalculated when they reach FRA to take away any the early filing reduction that was applied for any months that their benefits were withheld due to the earnings test.
The adjustment of the reduction factor (ARF) recomputations are done automatically, so you shouldn’t need to do anything to receive any benefit adjustment you are entitled to. ARFs aren’t processed immediately after a person reaches FRA, though and it could take up to 18 months after you reach FRA to actually see any benefit rate increase resulting from an ARF.
However, any such adjustment in your benefit rate would be retroactive to the month you reached FRA, and Social Security would pay you any back pay that you have coming.
You may want to consider using my company’s software — Maximize My Social Security or MaxiFi Planner — to ensure your household receives the highest lifetime benefits. Our software accounts for the earnings test and the ARF. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry
Should I File For Spousal Benefits At Age 62?
Hi Larry, I make less than my spouse. My husband, born in 1959, has not filed yet for Social Security and is still working. Should I take spousal benefits as early as 62? Thanks, Carolyn
Hi Carolyn, It’s not possible to say without more information. First note that you can’t qualify for spousal benefits unless your spouse is collecting Social Security retirement or disability benefits. And you couldn’t apply for spousal benefits without also being required to apply for your retirement benefits at the same time.
Only people who were born prior to 1/2/1954 are allowed to apply for spousal benefits without being required to apply for their own retirement benefits at the same time.
Since you were apparently born after 1/1/1954, when you apply for either your own Social Security retirement benefits or for spousal benefits, you’ll be deemed to be applying for both benefits.
And you could only be eligible for spousal benefits if your own primary insurance amount (PIA) is less than half as much as your husband’s PIA. A person’s PIA is equal to their Social Security retirement benefit rate if they start drawing their benefits at full retirement age (FRA). Best, Larry
Is It Worth It To Wait Until 70?
Hi Larry, I have pretty much contributed the max during most working years and continue to work full time above the tax cap. Would it really be worth it for me to delay till 70? Thanks, Al
Hi Al, It certainly could be worth it to wait, but each person much decide that for themselves. If you wait past full retirement age (FRA) to start drawing your Social Security retirement benefits, you earn delayed retirement credits (DRCs). DRCs increase a person’s benefit rate by 2/3rds of 1% for each month that they wait past FRA to start drawing.
Depending on your year of birth, waiting until 70 would result in a lifetime monthly benefit rate that’s anywhere from 24% to 32% higher than the benefit rate you’d get if you start drawing at FRA.
Furthermore, the increased monthly benefit rate that a person receives by earning DRCs can potentially be passed on to their widow in the form of survivor benefits.
Continuing to work and pay into Social Security can also potentially increase your retirement benefit rate. Social Security retirement benefits are calculated based on an average of a person’s highest 35 years of Social Security covered wage-indexed earnings. That calculation establishes the person’s primary insurance amount, or PIA.
No matter how long you continue working, you can continue to increase your PIA if you earn more in a year than you did in one or more of the 35 years on which your current PIA is based. Any DRCs earned would then be applied to the resulting higher PIA. Best, Larry