Today’s column addresses Social Security’s earnings test, whether to file retroactively before 70, when spousal benefits can become available, how delayed retirement credits (DRCs) are calculated and applied and how foreign pensions can affect Social Security benefits. 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 My Income In Early 2019 Be Subject To Social Security’s Earnings Test?
Hi Larry, I will be 62 in July. I will have worked full time the first six months of 2019 and am going to start part time in July. Will the income I earned in the first six months of 2019 count toward the yearly maximum I can earn under the earnings test or does that start from the date my Social Security benefit starts? How much can I earn this year? Thanks, Tony
Hi Tony, Yes your earnings in the first six months, just as with the last six months, of 2019 will count toward Social Security’s earnings test exempt amount of $17,640, but you could still potentially be paid for August through December of 2019 if you earn no more than $1,470 in any of those months. August is the first month that you could be eligible for Social Security retirement benefits because you must be at least age 62 for a full month in order to qualify. However, before filing for benefits at age 62 and locking yourself into a permanently reduced monthly benefit rate, it may be worth running an expert Social Security benefits calculator, such as my company’s software or other careful and comprehensive software, to explore and compare your alternative filing options. Best, Larry
If I File For Benefits At Age 68, Should I Elect To Receive Retroactive Benefits?
Hi Larry, I will be 69 in October. Should I apply for Social Security retirement benefits now and keep the last six months of delayed retirement credits (DRCs) or I should apply retroactively and get six months of benefits in exchange for the DRCs? Best, Connie
Hi Connie, It might be best to wait until 70 if possible, since that’s when your retirement benefit rate would reach its highest point. If you choose to file now, you could select any month of entitlement as far back as six months retroactively and you would receive the applicable DRCs for the number of months that you opted not to receive benefits starting with the month you reached full retirement age (FRA) and ending with the month prior to the month you start drawing benefits. There’s no universally correct answer for when you should start your benefits.
However, if you file between FRA and 70, you will initially only be credited with the number of DRCs you earned through December of the year prior to your month of entitlement. Any DRCs accrued for the year in which you file aren’t credited until the following January. So, for example, if your month of entitlement was June 2019 you would initially be credited with any DRCs you earned through December 2018, and your benefit rate would then be recalculated to add DRCs for the months January through May 2019 in January 2020. Best, Larry
How Soon Can I File For Spousal Benefits Prior To Turning Age 66?
Hi Larry, I will be 66 this December and my husband was able to suspend his retirement benefit in early 2016 immediately after filing for it. How soon can I file for my spousal benefits prior to turning 66? Should we do this in person? Is there any other way to maximize our benefits? Thanks, Megan
Hi Megan, So I’m assuming that your husband filed for and suspended his benefits prior to the 4/29/2016 deadline established in the Bipartisan Budget Act of 2015. That would mean that since you were born prior to 1/2/1954, you have the option of drawing just spousal benefits only starting with the month you reach your full retirement age (FRA) of 66 while allowing your own benefit rate to grow until age 70. But note that you can’t restrict your application to just your spousal benefit only before your FRA, only at or after your FRA.
If that’s your plan, then in your case you can submit your restricted application for only spousal benefits as early as August, but you’ll need to be clear that you want your benefits to begin in your FRA month of December, which will be your entitlement month. You would then need to file a separate application when you want to establish entitlement to retirement benefits on your own record, presumably at 70 assuming that your retirement rate will be higher than your spousal benefit rate at that time. Although it sounds like what I’ve described above would likely be best based on the limited information in your question, you may want to strongly consider using an expert Social Security benefits calculator as described in other answers to confirm that this is in fact your best strategy. Best, Larry
What Rate Does Social Security Pay Until Your DRCs Are Updated And Paid?
Hi Larry, You’ve written that SSA does not update delayed retirement credits (DRCs) for up to two years. If you make an initial application including the DRCs, what amount does SSA pay for retirement until the DRCs are updated and paid? Is the primary insurance amount (PIA) payable until the the DRCs are updated? As I understand it, you would only receive the PIA until the DRCs are calculated. After the DRC back payments, would you receive the increased amounts monthly to reflect the DRC? Best, Manny
Hi Manny, The answer to your question depends on when you file for benefits. For example, say you reach full retirement age (FRA) in June of this year, but you choose August as your month of entitlement. Although you would then earn two months of DRCs, you would initially only be paid your Primary Insurance Amount (PIA), which is equal to your full retirement age (FRA) retirement benefit amount. The higher rate including two DRCs would be due starting for the month of January 2020, but the automated process to recalculate your rate may not be done by Social Security until sometime in the year 2021. In the meantime, they would continue to pay you your PIA in this example.
However, say in the example above that the same person filed for benefits a year later. In that case, his initial rate would include the seven DRCs he had earned through December 2019, and that rate would continue to be paid until Social Security’s recomputes his rate to credit him for his additional DRCs for 2020. Best, Larry
Can Social Security Withhold What I Contributed Because I Have A Decent Savings Account?
Hi Larry, I am 66, a US citizen and I worked 26 years overseas so I was not able to contribute to Social Security Insurance during that time. I received a lump sum payment from the company I worked for. I do not receive a monthly check from that company. However I also worked 20 years in the US and paid into the Social Security every paycheck. I am semi retired now and plan to continue to work for as long as I can and will therefore have to continue to pay Social Security tax. Am I eligible to receive Social Security benefits will they deny benefits because I received a foreign pension as a lump sum? Am I being unfairly punished because I have a decent bank account? Thanks, Jack
Hi Jack, You’re not being punished for your bank account. Your bank account balance is irrelevant. As long as you have 40 quarters of Social Security coverage (i.e. 10 years), you can be paid retirement benefits regardless of how much money you have in the bank. However, if you receive a pension or you received a lump sum in lieu of a pension that is based on work where you did not pay Social Security taxes, then your Social Security benefit rate may be calculated using a less generous computation formula.
The reason for this is the Windfall Elimination Provision (WEP). Although it sounds like the WEP provision may be involved in your case depending on the details of the lump sum you received from your former employer, WEP never reduces a person’s Social Security retirement benefit rate to zero so you will be able to receive a Social Security retirement benefit even with your foreign pension. Best, Larry
To learn more about your Social Security options, visit Economic Security Planning, Inc.