Ask Larry: Will Social Security’s Earnings Test Reduce My Husband’s Spousal Benefit Be Reduced?

Today’s column addresses questions about potential effects of Social Security’s earnings test on spousal benefits, whether benefits lost to the earnings test are repaid and getting retirement benefits after survivor benefits. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc, which markets Maximize My Social Security and MaxiFi Planner.

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Will Social Security’s Earnings Test Reduce My Husband’s Spousal Benefit Be Reduced?

Hi Larry, My husband, who is 67, is collecting his spousal benefit based on my record while waiting till 70 to file for his retirement benefit. I filed when I was 63. If I go back to work, I know my retirement benefit will be reduced $1 for each $2 I earn over the annual limit. Will my husband’s spousal benefit be reduced too. Thanks, Katy

Hi Katy, Yes, if you earn enough to cause your benefits to be withheld due to the earnings test, then your husband’s spousal benefits would also be withheld.

For example, say Jane is 63 and receives a reduced retirement benefit of $1250. Jane’s husband is drawing an unreduced spousal benefit of $750, meaning that a total of $2,000 is payable monthly from Jane’s record. If Jane is working and earns more than the earnings test exempt amount, both her retirement benefits and her husband’s spousal benefits would be withheld for as long as it takes to withhold $1 of benefits for each $2 of Jane’s excess earnings. The exempt earnings amount is $18,240 in 2020, so if for example Jane earned $38,240 in 2020, then $10,000 of benefits would need to be withheld (i.e. ($38,240 – $18,240)/2 = $10,000). Thus, Social Security would need to withhold both Jane’s and her husband’s benefits for five months. Best, Larry

If I File Now, How Do I Figure Out What My Wife’s Spousal Rate Would Be?

Hi Larry, I am 62 and 3 months and my wife is 65 and 3 months. She has been on Social Security disability for 25 years gets a pretty small check. I make enough that if I file but keep working, I will not keep any of my benefit but, I heard that it just goes back to my account. If I file now, how do I figure out what my wife’s spousal benefits would be. Thanks, Steve

Hi Steve, Your wife’s unreduced spousal rate would be calculated by subtracting her primary insurance amount (PIA) from 50% of your PIA. A person’s PIA is equal to their Social Security retirement benefit amount if they start drawing at full retirement age (FRA), or their full Social Security disability (SSDI) rate.

Therefore, if 50% of your PIA is higher than your wife’s full SSDI rate, she could potentially claim spousal benefits when you start drawing your retirement benefits. But, if she claims spousal benefits prior to her FRA, her spousal rate would be reduced for age. Also, your wife’s spousal benefits couldn’t be paid for any months that your earnings cause your benefits for be withheld, so if you work and earn too much, then both your benefits and your wife’s spousal benefits may need to be withheld due to Social Security’s earnings test.

If you file for your benefits prior to FRA and your earnings require withholding of some or all of your benefits, you wouldn’t be paid those benefits in the future. What would happen is that effective with the month you reach FRA Social Security would remove the reduction for age that was previously applied to your benefit rate for any months prior to FRA that you ended up not being paid due to the earnings test.

For example, say Bob files for his Social Security retirement benefits at 65 instead of his FRA of 66 and 2 months. Bob’s FRA rate would have been $1,800, but his age 65 rate is reduced for age to $1,660. That reduction of $140 is based on the presumption that Bob will be paid for all of the 14 months prior to his FRA. But if Bob ends up only being paid for, let’s say, 7 of those months due to his earnings, then Social Security would remove half of the $140 reduction in the month Bob reaches FRA. In other words, Bob’s benefit rate starting at FRA would be increased from $1,660 to $1,730 because the initial $140 reduction was changed to the appropriate $70 reduction. So one way to look at it is that if Bob lives long enough, he may eventually recoup the benefits he lost due to the earnings in the form of the $70 increase in his monthly benefit rate.

You may want to strongly consider using my company’s software — Maximize My Social Security or MaxiFi Planner — to fully analyze your options in order to determine your best filing strategy for 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

Why Can’t I Draw My Own Retirement Benefit If I Receive Widow’s Benefits?

I receive widow’s benefits. Why can’t I draw my own Social Security? I am 75. I paid in for over 50 years. What happens to my money? Thanks, Amy

Hi Amy, You can draw your own Social Security benefits, but you can’t draw both your own benefits and a full widow’s benefit at the same time. The most you can be paid is either your own benefit rate or your widow’s rate. The reason for that is simply that it’s stated that way in the Social Security law that congress passed into law.

If you’re drawing your own benefits and your spouse dies before you, you can only be paid the higher of the two amounts. However, your own benefits wouldn’t stop in that event. Instead, you’d continue to be paid your own benefits, and if your spouse’s rate was higher than your own rate, you’d also be paid a partial widow’s benefit in addition to your own benefit. The partial widow’s benefit would amount to the difference in your benefit and your deceased spouse’s rate, so the net result is that you’d then receive a combined rate equal to your deceased spouse’s higher rate. Best, Larry