How Do Earned Income and Social Security Tests Affect Retirement Benefits?

Today’s column addresses questions about proof of income, work and early filing, withdrawal of a benefit after filing, and proof of marriage and divorce from a deceased ex-spouse. Larry Kotlikoff is professor of economics at Boston University and founder and president of Economic Security Planning, Inc, which markets Maximize my social security and MaxiFi Planner.

See more of Ask Larry’s responses here.

Do you have your own questions about Social Security that you would like to answer? Ask Larry about Social Security here.


If my wife applies early and continues to work, how are her benefits calculated in FRA?

Hi Larry, My wife’s birthday is in 1955. She had three surgeries earlier this year. He previously earned approximately $ 70,000. We are considering starting with your Social Security retirement benefits, which would be approximately $ 2,800.

I retired three years ago and started my retirement benefits when I turned 66 last year and received about $ 2,150 plus my pension and part-time work as a school bus driver. I understand about the income test and that for my wife about $ 550 withheld each month based on her income, right?

So if we apply for your retirement benefits, how is it calculated in your FRA? Thanks Nelson

Hi Nelson: Actually, you don’t seem to fully understand how the earnings test works. If a person earns more than the amount exempted from the Social Security income test, Social Security withholds the person’s full monthly benefits for as long as it takes to withhold the required amount. They do not prorate the amount to withhold on a monthly rate.

For example, suppose Sue applies for her Social Security retirement benefits beginning in March 2021. Sue was born in October 1955, so she will reach full retirement age (FRA) in December 2021. Sue will continue to work and earn a total of $ 70,000 in 2021, but Social Security will only count the amount Sue earns from January to November. There is no limit to how much Sue could earn and still receive all of her benefits as of her December 2021 FRA.

Let’s say Sue’s earnings in 2021 through November will be $ 66,480, which is more than the $ 50,520 that is exempt under the earnings test for people who reach FRA in 2021. Sue’s excess earnings would then be $ 15,960 and Social Security would have to withhold $ 5,320 from Sue’s benefits. (That is, $ 1 of profit for every $ 3 of Sue’s excess earnings). Sue’s reduced fee for claiming her benefits nine months before March 2021 is $ 2,660. To withhold the $ 5,320 of Sue’s benefits required from her income, Social Security would withhold Sue’s full benefit payments for March and April 2021. Sue would then be paid her total reduced benefit rate of $ 2,660 for May. from 2021 onwards.

Once Sue reaches FRA, Social Security would adjust her permanent benefit rate to eliminate the percentage reduction previously applied for the months Sue’s benefits were withheld due to the income test. Since Sue’s benefits were withheld for two months prior to her FRA, her benefit rate would adjust from $ 2,660 to $ 2,691. In other words, Sue’s benefit rate would only be permanently reduced for the seven months that benefits were actually paid to her prior to her FRA.

I should point out that if your wife applies for your benefits early, it will limit the amount you could receive as a survivor if she dies before you. If your wife dies before you do, you could be paid up to the higher amount of your own benefit rate or your benefit rate.

So if your wife’s rate is reduced for starting her benefits early, that reduction would carry over to her potential benefit rate as a widower. It seems that you and your wife should consider using my company’s software. Maximize my social security or MaxiFi Planner – fully analyze your options so that you can choose the best possible strategy to maximize your profits. Social Security calculators provided by other companies or nonprofits can provide appropriate suggestions if they were constructed with extreme care. Better, Larry


Does my sister have the option to suspend or delay her social security for up to a year after her initial claim?

Hi Larry, My sister, 62 years old in September 2020, started claiming Social Security retirement benefits in late 2020 and back and forth about what the amount was and how much she can work to not have the earnings deduction. Do you have the option to request suspension or delay of your retirement benefit, up to one year after your initial claim? Thanks, Rosemary

Hello Rosemary, Your sister was unable to choose to voluntarily suspend her benefits at any time prior to the month in which she reaches full retirement age (FRA).

However, you would be allowed to withdraw your application at any time up to 12 months after the first month you originally claimed your benefits. However, you would have to pay back the benefits you have collected before your withdrawal request is approved. And then you cannot claim benefits from the month you reapply for benefits. Better, Larry


Does it appear that I will receive my widow’s benefits?

Hi Larry, I have an appointment with Social Security for widowhood benefits. I was married from 1998 to 2008. I was told that all I need to submit is the bank information from my marriage certificate for the call. Do I need anything else and do I seem to be able to receive my widow’s benefit? Thanks Pat

Hi Pat, There is not enough information in your question to be able to tell you with certainty whether or not you qualify for benefits. However, it appears that you meet the 10-year marriage requirement to survive divorced spouse benefits.

Since you apparently divorced before your ex-husband died, you will need to prove to Social Security that you were married for at least 10 years. So, in addition to proof of your marriage, you will almost certainly need a certified copy of your divorce decree.

Sometimes you are also required to provide proof of age (for example, birth certificate), but only if there is an age discrepancy in your records. If you apply over the phone, the representative you speak with will let you know exactly what evidence is needed in your case. Better, Larry


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