Ask Larry: Are Social Security Benefits Withheld Due To The Earnings Test Paid Back At FRA?

Today’s column addresses what happens when benefits are withheld due to the earnings test, when spousal benefits might be available, public pensions and spousal benefits, survivor benefits and how excess spousal benefits are calculated. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc, a company that markets Maximize My Social Security and MaxiFi Planner.

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Ask Larry about Social Security here.

Are Social Security Benefits Withheld Due To The Earnings Test Paid Back At FRA?

Hi Larry, My mother is 62 and is considering whether to start her widow’s benefits based on my deceased father’s Social Security. She would get about $23,256 at 62 and her benefit at 70 would switch to her retirement benefit, which would be about $36,059. If she is still earning income that would reduce her widow’s benefit. Are the earnings deductions given back at 66 or are they lost? Thanks, Gary

Hi Gary, Benefits withheld due to the earnings test are not accumulated and given back at person’s full retirement age (FRA). What does happen is that the recipient’s benefit rate is recalculated at FRA in order to remove the percentage reduction for age that was applied to their benefit rate for any months that they aren’t paid due to their earnings.

For example, say Jane files for widow’s benefits at 62 instead of her FRA of 66. Jane’s FRA rate would be $1,000, but she takes a reduced rate of $810 to start her benefits 48 months early. If Jane ends up only being paid for 24 of those months due to the earnings test, her widow’s rate would be adjusted at FRA to remove half of the percentage reduction that was initially applied to her benefit rate. In Jane’s case, that would increase her rate to $905. Best Larry

Is My Wife Entitled To Any Benefits From My Record?

Hi Larry, I am a disabled veteran drawing SSDI since 2006. I’m now 62. How does this affect my wife? She’s 64, working and not drawing Social Security. Is she entitled to a spousal benefit based on my record? Thanks, Ralph

Hi Ralph, Your wife could potentially qualify for spousal benefits from your record, but only if 50% of your Primary Insurance Amount (PIA), which is equal to your full retirement age (FRA) retirement benefit amount, is higher than your wife’s own PIA. SSDI benefits are normally paid at 100% of a person’s PIA, by the way.

Since your wife was born after 1/1/1954, when she files for either spousal benefits or her own Social Security retirement benefits, she’ll be deemed to be filing for both. She’ll then only be paid essentially the higher of the two benefit rates, and her rate will be reduced for age if she starts drawing prior to her full retirement age (FRA). Also, if your wife files prior to FRA, her benefits could be subject to full of partial withholding depending on how much she’s earning.

Your wife may want to use one of my company’s two tools — Maximize My Social Security or MaxiFi Planner — are fully programmed to handle cases involving both WEP and GPO, so you may want to strongly consider using the software to help you with your Social Security planning. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry

Can My Husband Ever Be Eligible For Spousal Benefits?

Hi Larry, I am 66 and started collecting my retirement benefits. My husband is 67 but worked for the post office for 40 years and so is not entitled to Social Security benefits on his own record. Can he ever be eligible for spousal benefits on my record? Thanks, Hollie

Hi Hollie, Probably not. Assuming that your husband is receiving civil service retirement (CSRS) benefits based on his earnings that were exempt from Social Security taxes, any Social Security spousal benefits for which he would otherwise be eligible would likely be offset by 2/3rds of the gross amount of his CSRS pension. So, unless 50% of your Primary Insurance Amount (PIA), which is equal to your full retirement age (FRA) retirement benefit amount, is more than 2/3rds of the amount of your husband’s CSRS pension, he almost certainly couldn’t be paid any spousal benefits. By the way, the offset described above is due to the Government Pension Offset (GPO) provision. Best, Larry

Is It Correct That My Wife Would Get The Full Benefit I Was Receiving At The Time Of My Death?

Hi Larry, I waited until this year when I was 70 to maximize the amount of Social Security that my wife will get when I die, as on her own record she will receive 30% less than I receive. She is 63. If she waits until she reaches FRA at 66 and 4 months and I die after that, can you confirm that she will receive the current amount that I am receiving at the time. If you talk or chat with an agent, they always talk about the FRA, but I read the regulations, and although not very clear, it says that she will get the greater of either her benefits at the time of my death, or my benefits at the my death. Thanks, Everett

Hi Everett, If you die before your wife and she’s at least full retirement age (FRA) when you die, then yes she’ll get your full benefit rate inclusive of delayed retirement credits (DRCs) unless her own benefit rate is higher than yours. In other words, she’d receive the higher of your rate or her own rate, not both.

It sounds like the only decision left for you and your wife is when she should start drawing her benefits. There are a number of variables involved in making that decision, and which strategy is “best” is largely a matter of personal opinion. Software can help you pick the best strategy for you and your wife. Best, Larry

Can You Explain My Sister And Brother-In-Law Are Getting The Benefit Rates They Receive?

Hi Larry, My brother-in-law receives $700 a month from his own Social Security benefits plus $300 excess spousal benefit. My sister receives $1,000 a month from her own social security benefits. They won’t tell me how they accomplished this. Can you explain to me how this is done? Thanks, Tim

Hi Tim, Assuming that you’re referring to a couple, the comparative benefit amounts you mention aren’t possible unless part of your sister’s benefits are being withheld for some reason. In order for your brother-in-law to be eligible for an excess spousal benefit of $300 in addition to his own rate of $700, his wife’s Primary Insurance Amount (PIA), which is equal to his full retirement age (FRA) retirement benefit amount, would have to be at least $2,000. That’s because your brother-in-law’s excess spousal benefits (if any) would be calculated by subtracting his own PIA from 50% of your sister’s PIA.

Even if your sister started drawing reduced benefits at age 62, a PIA of $2,000 would result in an age 62 rate of $1,450. So, there must be more to the story than what you’re being told. Best, Larry