How does the earnings take a look at for work and social safety have an effect on retirement advantages?
Economic Security Planning, Inc.
Today’s column covers questions related to the earnings test, early work and filing, withdrawal of a benefit after filing an application, and proof of marriage and divorce from a deceased ex-spouse. Larry Kotlikoff is Professor of Economics at Boston University and the Founder and President of Economic Security Planning, Inc, which market Maximize My Social Security and MaxiFi Planner.
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If my wife submits early and continues working, how is her benefit calculated at FRA?
Hello Larry, it is my wife’s birthday in 1955. She had three surgeries earlier this year. Before that, she made around $ 70,000. We are considering drawing on her Social Security Pension, which would be approximately $ 2,800.
I retired three years ago and retired last year at 66 and got about $ 2,150 plus my pension plus part-time work as a school bus driver. I understand the merit test and that my wife is withheld about $ 550 every month based on her income, right?
So if we have applied for your old-age pension, how is it calculated at your FRA? Thanks Nelson
Hi Nelson, it sounds like you don’t quite understand how the merit test works. If a person earns more than the exemption for the social security income test, the social security will withhold the person’s full monthly benefits until the required amount is withheld. You do not convert the amount to be withheld into a monthly installment on a pro rata basis.
For example, suppose Sue is applying for her Social Security Pension Benefit effective March 2021. Sue was born in October 1955 and will therefore reach her full retirement age (FRA) in December 2021. Sue will continue to work and overall. earn $ 70,000 in 2021, but Social Security only counts the amount Sue earns from January through November. There is no limit to how much Sue can earn and still receive all of her benefits from her FRA in December 2021.
Let’s say Sue’s earnings in 2021 will be $ 66,480 through November, which is more than the $ 50,520 exempted from the income test for individuals who reach FRA in 2021. Sue’s excess income would then be $ 15,960, and Social Security would have to withhold $ 5,320 from Sue’s benefits (i.e., $ 1 in benefits for every $ 3 of Sue’s excess income). Sue’s discounted rate for using her nine months early March 2021 service is $ 2,660. To withhold the $ 5,320 of Sue’s benefits required to support her income, Sue’s Social Security would withhold full benefit payments for March and April 2021.
After Sue reached FRA, Social Security would adjust its perpetual benefit rate to remove the percentage reduction previously applied to all months in which Sue’s income test benefits were withheld. Since Sue’s benefits were withheld for two months prior to her FRA, her benefit rate would then be adjusted from $ 2,660 to $ 2,691. In other words, Sue’s benefit rate would only be permanently reduced for the seven months she was actually paid prior to her FRA.
I want to point out that if your wife applies for her benefits early, it will limit the amount that you as a survivor can receive if she dies before you do. If your wife dies before you do, you can be paid up to your own benefit rate or benefit rate.
So if your wife’s early retirement rate is lowered, that reduction would carry over to your potential widower retirement rate. It sounds like you and your wife want to use my company’s software – Maximize My Social Security or MaxiFi Planner – to fully analyze your options so you can choose the best possible strategy to maximize your benefits. Social security calculators provided by other companies or non-profit organizations can provide suitable suggestions if they have been prepared with the utmost care. Best of all, Larry
Does my sister have the option of terminating or deferring her social insurance for up to a year after her initial application?
Hello Larry, My sister, 62 in September 2020, started applying for Social Security Pension Benefits in late 2020, going back and forth about what the amount was and how much she can work to avoid having a wage deduction. Does she have the option of suspending or deferring her retirement pension for up to one year after her original entitlement? Thank you, Rosemarie
Hi Rosemary, your sister was unable to voluntarily suspend her benefits until the month she reached full retirement age (FRA).
However, she can withdraw her application up to 12 months after the first month in which she originally claimed her benefits. However, she would have to return any benefits she received before her withdrawal request can be approved. And she can only claim back benefits from the month in which she applies for the benefits again. Best of all, Larry
Does it sound like I’m receiving my widow’s benefits?
Hello Larry, I have an appointment with Social Security for widow benefits. I was married from 1998 to 2008. They told me I just need my marriage certificate and bank details to call. Do I need anything else and does it sound like I could withdraw my widow’s allowance? Thanks, Pat
Hi Pat, Your question does not contain enough information to tell you with certainty whether or not you are entitled to benefits. However, it sounds like you are completing the 10-year marriage period for the divorced spouse’s survivor’s pension.
Since you appear to have been divorced before your ex-husband’s death, you will need to prove to Social Security that you were married for at least 10 years. Therefore, in addition to proof of your marriage, you will almost certainly need a certified copy of your divorce decree.
Sometimes you also have to provide proof of age (e.g. birth certificate), but only if there are age differences in your documents. If you file over the phone, the representative you speak to will tell you exactly what evidence is needed in your case. Best of all, Larry