Today’s column takes up eligibility for restricted applications, potential effects of early retirement benefits on later spousal benefits, filing before 70 to allow spousal benefits, determining Primary Insurance Amounts (PIA)s and the extent of the earnings test. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, a company that markets Maximize My Social Security and MaxiFi Planner. Both tools maximize lifetime Social Security benefits. MaxiFi also finds retirement account withdrawal strategies and other ways to lower your lifetime taxes and raise your lifetime spending. Most important, it suggests how much to spend and save each year to enjoy a stable living standard through time.
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Ask Larry about Social Security:
Will We Be Able To File Restricted Applications For Social Security Spousal Benefits?
Hi Larry, I have not taken my Social Security retirement benefits yet. I was born in 1953 and my wife was born in 1954. She doesn’t have 40 credits to claim her own Social Security retirement benefits. I want to delay claiming as long as I can so I can get a higher payment. Am I eligible for a restricted application so I can claim a spousal benefit now and then claim my own Social Security retirement benefits in future? Thanks, Frank
Hi Frank, You couldn’t qualify for spousal benefits unless your wife is drawing her Social Security retirement benefits based on her own work record, and your wife couldn’t draw spousal benefits on your record until you start drawing your benefits.
Regardless of whether you start drawing your benefits as early as now or as late as age 70, your wife’s unreduced spousal benefit amount would be calculated at 50% of your Primary Insurance Amount (PIA), which is equal to your full retirement age (FRA) retirement benefit amount. However, if she starts drawing spousal benefits before her full retirement age (FRA), her spousal rate will be reduced for age.
In other words, your wife’s maximum possible spousal rate would be 50% of your PIA regardless of when you start drawing your benefits. That’s true even if you waited until 70 to start drawing benefits, in which case your monthly benefit rate would be 32% higher than your PIA. But if you die before your wife, her unreduced widow’s rate would be equal to the full amount that you were receiving at the time of your death. So by waiting until 70 to start drawing, you would not only assure yourself of receiving your highest possible monthly benefit rate for life, it would also provide your wife with her highest possible widow’s benefit amount should you die before her. Obviously, though, that would mean that neither of you would receive any benefits until you reach 70.
It sounds like you may want to use one of my company’s two tools — Maximize My Social Security or MaxiFi Planner — to help maximize your lifetime Social Security benefits. 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 Wife Start Collecting Her Benefits Without Impacting What She’ll Later Receive In Spousal Benefits?
Hi Larry, My wife’s retirement benefit from Social Security is less than half what she’ll receive as a spousal benefit when I retire at 70. She is a year older than me. Can she start collecting her own benefit at 62 without impacting the spousal benefit she can receive when I start collecting at 70? I read all about “deeming,” but she can’t claim a spousal benefit until I start collecting my retirement benefit at 70, right? Thanks, Stephan
Hi Stephan, You’re right that your wife couldn’t claim spousal benefits until you start drawing your benefits. She can start drawing her own benefits at any time starting at 62, but if she files before her full retirement age (FRA), her benefit rate will be reduced and she will keep that reduction even if she later becomes eligible for spousal benefits.
For example, say Mindy files for her benefits at 62. Mindy’s Primary Insurance Amount (PIA), which is equal to her full retirement age (FRA) retirement benefit amount, is $800, but she receives a reduced rate of $575 in return for starting her benefits early. When Mindy is 71, her husband files for his Social Security benefits with a PIA of $,2000. Mindy’s spousal rate would be determined by subtracting her PIA from 50% of her husband’s PIA, which would be $200 in this example (i.e. $2,000 / 2 – $800). That $200 would then be added to Mindy’s own reduced retirement rate to give her a combined benefit amount of $775.
And note that spousal benefits are 50% of the other spouse’s PIA, not 50% of an increased benefit taken after FRA or a decreased benefit taken before FRA. Best, Larry
What Do You Think Of My Thinking?
Hi Larry, I just turned 68 and my wife just turned 66. I was going to wait until 70 to take my retirement benefits and my wife was going to take her retirement benefits at 67. She wants to retire as soon as it makes sense but we now wonder if it might be smarter for me to take my retirement benefits a year earlier at 69 and have my wife take spousal benefits at 66 and then she’d take her own benefits at 70. What do you think? Thanks, Howard
Hi Howard, The strategy you’ve outlined sounds fine, but there are certainly other plausible options available to you and your wife. One alternative strategy would be to wait until 70 to start your benefits, at which time your wife would file just for spousal benefits while allowing her own rate to grow until 70. Or, your wife could file on her own record at 66 or even sooner, allowing you to draw spousal benefits before switching to your own record at age 70. One of my company’s programs — Maximize My Social Security or MaxiFi Planner — can help maximize your lifetime Social Security benefits and Social Security calculators provided by other companies or non-profits can provide proper suggestions if they were also built with extreme care. Best, Larry
How Can I Determine The Amount Of My PIA?
Hi Larry, I am 68 and want to find out what my PIA is to help my planning. I called Social Security twice and got two very different answers. I have a Social Security statement dated 15 months before I turned 66 and that doesn’t match either of the two amounts the Social Security reps saquotedid. And I can’t find the amount on my account at mysocialsecurity.gov. What do you suggest? Thanks, Gary
Hi Gary, You should be able to get that information from Social Security but if not, a good Social Security benefits calculator that uses the exact same formula as Social Security like my company’s software can also help. So that would be an excellent option for determining the amount of your Primary Insurance Amount (PIA), which is equal to your full retirement age (FRA) retirement benefit amount. In theory, you could calculate the benefit rate yourself, but the formula is very complicated. By the way, I’m guessing that the reason you aren’t able to obtain an online estimate online is because you’re probably signed up for Medicare. For whatever reason, Social Security limits their online options available to people who’ve applied for benefits, even if they’ve only applied for Medicare and not monthly benefits. Best, Larry
Does Social Security’s Income Capping Go Away When I Reach My Full Retirement Age?
Hi Larry, For completely unexpected chronic unemployment and health reasons, I started taking Social Security retirement benefits at 62. As expected, any income earned was capped at around $15,000–$16,000 per year by the earnings test kicked in. Does this earnings test go away when I reach my full retirement age? Thanks, Nelson
Hi Nelson, Yes. In fact even before you reach your full retirement age (FRA), not all income is subject to the earnings test, only earned income. Specifically, earned income is defined as any combination of gross wages and net earnings from self employment. Other types of income aren’t limited by the Social Security earnings test. Once you reach FRA though, you can draw all of your Social Security benefits regardless of how much earned or unearned income you may have. Best, Larry
To learn more about your Social Security options, visit Economic Security Planning, Inc.