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Ask Larry: Will Earning Less Lower My Social Security Retirement Benefit?

Social Security may be one of your largest assets. What and when you collect will make a huge difference to your lifetime benefits.

Today’s column addresses whether earning less before filing will reduce benefit amounts, when spousal benefit can become available, sequencing retirement and spousal benefits, spousal benefits on the record of someone on disability and verifying Social Security benefit amounts. Larry Kotlikoff is the founder and president of Economic Security Planning, a company that markets Maximize My Social Security, a Social Security benefits calculator referred to in this post.

See more Ask Larry answers here.

Ask Larry about Social Security:

Will Earning Less Lower My Social Security Retirement Benefit?​​

Hi Larry, I’m a single, 66 years old and I recently retired from my information technology career. I’m trying to hold out until age 70 to collect my Social Security retirement benefit. According to my Social Security statement, I would collect $3,232 per month if I start then. I have now started working part time doing something I love, but I’m only making about $1,000 per month, which is a fraction my previous salary. Will these lower wages during the next three and a half years adversely affect the Social Security retirement benefit at 70? Thanks, Kari

Hi Kari, Provided that the benefit estimate shown on your Social Security statement does not include future year earnings that won’t materialize, then having less income than in preceding years won’t lower your benefit amount. Your Social Security retirement benefit rate will be based on your highest 35 years of wage-indexed earnings. The indexing is to account for inflation. So if the estimate you received is based on your actual earnings to date, you couldn’t lower your benefit amount by working for lower wages before filing.

An expert Social Security benefits calculator, such as Maximize My Social Security or another program that lets you enter current and future income taxed by Social Security and see what effects if any the income has on your benefit amounts, will allow you to compare all of your filing options so you can identify your best strategy for claiming your benefits. Best, Larry

Can My Wife Start Claiming Her Share Of My Social Security Before I File?​​

Hi Larry, I am 57 and do not plan to retire until I am 65. However, my wife is going to be 65 this year. She has been a homemaker throughout all of our marriage and has essentially gained no income of her own during our marriage. She is also a permanent resident alien. Can she claim Social Security spousal benefits based on my record? If so, when? Can she do so while I am still working and before I file? What would be the impact on my Social Security payments when I do reach 65 and file? Thanks, Al

Hi Al, Your wife couldn’t receive spousal benefits on your record until you actually start drawing your retireement benefits. However, if she’s been a permanent US resident for at least 5 years she could enroll in Medicare at 65, although she would not be able to get free Part A (inpatient hospital) coverage until you turn age 62. She could get free Part A coverage when you turn age 62, though, even if you don’t file for your Social Security benefits at that time.

If your wife doesn’t have healthcare coverage under an employer group plan through your work, then she may want to consider signing up for at least Part B and possibly Part D of Medicare when she turns age 65 in order to avoid potentially having to pay higher premium rates in the future. She wouldn’t be subject to the higher premium penalties, though, as long as she has qualifying health care coverage based on your active employment. Best, Larry

Can My Wife File For Her Benefits At FRA And Then For Spousal Benefits When I Start Drawing?​​

HI Larry, My wife was born in 1955 and I was born in 1954. Her income is significantly less than mine and her spousal benefit will be greater than her own benefit. Under the new Social Security rules, can she file for her full retirement benefits at her FRA but still get an increased spousal benefit if I delay filing until 70? Thanks, Bill

Hi Bill, If your wife’s own retirement benefit rate would be less than 50% of your full retirement age rate (PIA) even if she waited until age 70 to start drawing, then she would not want to wait past her full retirement age (FRA) to file for her own retirement benefits. Your wife could then file for additional spousal benefits when you subsequently start drawing your benefits. And note that her spousal benefit rate would be calculated by subtracting her Primary Insurance Amount (PIA), which is equal to her full retirement age (FRA) retirement benefit amount, from 50% of your PIA. This means that her spousal benefit is 50% of your FRA retirement benefit amount, not 50% of your increased benefit at 70. Best, Larry

Can I File For Spousal Benefits On My Husband’s Disability Record Even If He’s Not Yet Age 66?​​

Hi Larry, I was born in early 1953 and my husband in late 1953. He has been on Social Security Disability for about 10 years. I have read your book Get What’s Yours, and know about some of subsequent changes to the rules. I applied to receive spousal benefits earlier this year at 66 and will switch over to my own larger retirement benefits at 70. I believe that because my husband is on disability, I can get spousal benefits now with no penalty to either of us — is that correct, or should I have waited until he turns 66? Thanks, Mattie

Hi Mattie, Yes, your plan sounds fine based on the information listed in your question. Your husband doesn’t need to be full retirement age (FRA) in order for you to file for spousal benefits, he just needs to be drawing either his disability or retirement benefits. And as long as you didn’t file before your FRA of 66, you can file just for spousal benefits only without affecting your own retirement benefit at 70. I should mention that in some cases the family maximum benefit rate is lower on disability records than it is on retirement records, which could potentially affect your spousal rate. Best, Larry

Did Social Security Compute My Spousal Benefit Rate Correctly?​​

Hi, I just claimed my Social Security spousal benefits and I believe I am not getting the amount of money I should. My benefit is now is $781 and my husband’s Social Security retirement benefit is $2,005. I claimed my spousal benefits 8 months before my full retirement age of 66 and according to the Social Security benefits website, I should receive 47.22% of my husband PIA. I was told by a Social Security representative that I will have an increase of $78. Does this sound correct? Thanks, Mindy

Hi Mindy, Probably. Since you filed for reduced retirement benefits on your own record, you’d be stuck with that reduction plus any reduction that applies to your excess spousal benefits. For example:

Say Jane has a Primary Insurance Amount (PIA), which is equal to her full retirement age (FRA) retirement benefit amount, of $900, but she files for reduced retirement benefits at 64 at a rate of $780. Jane’s husband later files for his retirement benefits and his PIA is $2,000. Jane’s unreduced excess spousal benefit would be calculated by subtracting her PIA from 50% of her husband’s PIA, which in this example would be $100 (i.e. $2,000 / 2 – $900). But, say that Jane becomes entitled to the spousal benefits 12 months before her full retirement age (FRA), so her spousal benefit would also be reduced to $91. Jane’s reduced spousal benefit would then be added to her reduced retirement benefit to give her a combined benefit rate of $871 (i.e. $780 + $91). If you wanted to check for certain, you could verify your benefit amounts using an expert Social Security benefits calculator as described in other answers. Best, Larry

To learn more about your Social Security options, visit Economic Security Planning, Inc.

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