Will my spouse’s retirement pension be diminished if she not works at 62?

Economic Security Planning, Inc.

Today’s column examines questions of whether cessation of work years prior to filing reduces retirement pension, the impact of ex-filing on a spouse’s records, disability conversion to old-age pension, and state pension compensation. Larry Kotlikoff is 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.

You can find more Ask Larry answers here.

Do you have any questions of your own about social security that you would like to have answered? Ask Larry about Social Security here.

Will my wife’s retirement pension be reduced if she no longer works at 62?

Hello Larry, my wife has worked for the airlines for 35 years. She is currently 62 years old and may need to retire. She is concerned that if she retires now and does not claim her Social Security pension until she reaches full retirement ages of 66 and 8 months without earning an income, her pension benefits listed today will be reduced. Will her benefits be reduced because she did not work for 4 to 5 years prior to submission at 66 and 8 months? Thank you, Norm

Hello Norm, your wife’s benefit rate would not go down if she stopped working. However, if the estimated benefit rate you are referring to includes income for the coming year that will not occur because she quits her job, then her benefit rate may not be as high as the estimate given.

Social security retirement benefits are based on the average of the highest 35 years of social insurance coverage for a person’s wage-indexed income. If you calculate your wife’s benefit rate based on her highest 35 years to date, that rate doesn’t decrease when she stops working. Stopping work would simply mean that she would not have the potential to increase her rate by replacing lower income years currently included in her 35-year average with higher income years.

The social security benefit estimates for the declarations they make generally assume that an individual will continue to work at their current income level until the age of the estimated benefit rate. Therefore, your wife’s estimate on her Social Security Statement may be higher than her rate actually ends if the projected future earnings that she used in the estimate do not materialize.

You and your wife may want to consider using my company’s software – Maximize My Social Security or MaxiFi Planner – for your social security planning. The software can provide your wife with an accurate estimate of her benefit rate, with and without future income, so that she can estimate the difference in her benefit rate if she stopped working. You can also fully analyze both of the login options available to you to determine your best strategy for obtaining benefits. Social security calculators provided by other companies or non-profit organizations can provide suitable suggestions if they have been carefully prepared. Best of all, Larry

How much does my husband’s ex have on his file?

Hello Larry, I’ve been married to my husband for 13 years. His ex was married to him for 12 years before they divorced. I am 67 years old and she is either 59 or 60 years old. My husband mentioned to me that it is possible that she will be entitled to benefits in his file, at least after his death and possibly earlier. How much is she entitled to? Is it important that I be married to him longer or that she never remarried? Thanks, Aimee

Hi Aimee, your husband’s divorced or surviving divorced benefit rate is calculated the same way as your husband’s potential spouse or widow rate. If one day your husband’s ex is able to start receiving your husband’s Social Security benefits, it will not have an adverse effect on your spouse or widow benefit rate.

Both you and your husband’s ex could potentially be paid up to the full amount of your husband’s benefit rate as a survivor, and your benefit rates would not be affected by the fact that you both receive benefits on his record. Incidentally, this would also be the case if your husband had more than one ex. Best of all, Larry

Do I have to contact Social Security or will my SSDI automatically be converted into retirement benefits?

Hi Larry, I’m on SSDI and I work part time. My FRA will be May 2021. If I can continue to work, will I contact Social Security or will my SSDI automatically convert into a retirement pension? Thanks David

Hi David, As long as you are still eligible for Social Security Disability Benefits (SSDI) until you reach full retirement age, your SSDI will automatically convert to regular pension benefits from the month you reach FRA.

Once you reach FRA there is no limit to the amount you can earn and still collect your benefits. However, whether or not you can receive SSDI benefits prior to FRA will depend on your income level and whether or not you have completed your trial period. Best of all, Larry

Will the benefits for my surviving dependents be reduced due to the windfall tax?

Hi Larry, I am collecting my social security pension, but it is lower because I get a pension when I work in the school system where I have not paid social security taxes on my income. I am now entitled to a survivor’s pension from my ex-husband’s file. Will my widow’s benefit be cut because of the windfall tax? Thanks, Betsy

Hello Betsy, your widow’s benefits would not be reduced due to the Windfall Elimination Commission (WEP), which incidentally is not a tax. However, it sounds like your survivor benefits are likely to be at least partially offset based on the Government Pension Offset (GPO) determination.

The GPO may result in a person’s survivor benefits being offset by 2/3 of the amount of state pensions they receive based on their income from government work in the United States where they were exempt from paying social security taxes. So if you haven’t paid social security taxes on your income from the school system from which you are receiving a pension, any survivor benefits that you might otherwise qualify for will likely be offset, at least in part. Best of all, Larry

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