What is the highest possible Social Security retirement benefit rate?
Today’s Social Security column addresses questions about whether to file early when taking spousal benefits, non-W-2 income and the monthly earnings test, and other questions about benefits anticipated spouses. Larry Kotlikoff is a professor of economics at Boston University and founder and president of Economic Security Planning, Inc.
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When should my wife file for Social Security spousal benefits?
Hi Larry, I turned 65 last December and plan to start collecting Social Security in June. I completely stopped working in January 2020 — does this mean there will be a reduction in benefits? Also, my wife doesn’t have enough credits to claim a Social Security retirement benefit on her own.
Assuming she survives me, is it possible that her widow’s benefits are significantly less than what I would get? When should she apply for spousal benefits if she is eligible? Thanks Tom
Hi Tom, You don’t mention your wife’s age so I don’t know what her options are regarding spousal benefits. Your wife cannot collect spousal benefits at least until you start collecting your retirement benefits, and she must be at least 62 to qualify for spousal benefits.
If your wife starts collecting spousal benefits at full retirement age (FRA), her spousal rate will be 50% of your Primary Insurance Amount (PIA). A person’s PIA is equal to their Social Security retirement benefit rate if they start collecting their FRA benefits. But if your wife starts collecting spousal benefits at age 62, her rate could be reduced by up to 35%.
If you start collecting your retirement benefits in June, it looks like you’ll receive about 94.4% of your PIA. Your wife’s potential widowhood rate would also be limited to approximately 94.4% maximum of your PIA.
If, on the other hand, you waited until age 70 to start receiving your benefits, your benefit rate would be approximately 129.33% of your AIP, and your wife could receive up to that amount as a widow.
Regardless of when your wife starts collecting spousal benefits, as a widow she could still be paid up to the full monthly rate you were collecting at the time of your death, provided she is at least FRA at this moment.
And note that not having worked in the years before filing does not reduce your benefit amount, although it would mean that your benefit rate would not increase as it might otherwise based on the amount you would have. could win but you did not win.
You and your wife might want to consider using my company’s software – Maximize My Social Security or MaxiFi Planner – to ensure your household receives the highest benefits for life. Social Security calculators provided by other companies or nonprofits may provide appropriate suggestions if constructed with extreme care. Best, Larry
Would my income as an entrepreneur be averaged when applying the special monthly income test?
Hi Larry, I will be retiring at the end of August from my W-2 job. I will be 61 in July and I will claim widowhood benefits in September, so my first check will be in October. I understand that there is a special rule in the first year of claiming benefits with respect to the earnings ceiling. If I work as a contractor from September to the end of the year, how much am I allowed to earn? I believe it’s $1,630 per month.
But do they do it on average over the four months? If I make $2,000 or $3,000 in September, and nothing else the rest of the year, am I okay with the earnings limit? Would the $3,000 be divided by four months, leaving me well below the maximum of $1,630 per month? Thank you, Sally
Hi Sally, Earnings are never averaged when applying the monthly earnings test, whether or not a person works for pay or is self-employed. Where a person is self-employed, the special monthly earnings test is based on the number of hours a person devotes to their trade or business each month.
In most cases, where the monthly test applies, a self-employed person can be paid for any month in which he does not devote more than 45 hours to his trade or business. However, for high-skilled occupations such as doctors, the monthly limit is 15 hours.
The reason for using hours instead of earnings is that the self-employed do not necessarily receive the fruits of their labor long after the work has been done. For example, a farmer normally receives no income for his labor until he sells his grain or livestock. Best, Larry
Does it make sense for my wife to claim spousal benefits at age 65?
Hi Larry, my wife is 63, five years older than me. We decided it was best to wait until full retirement age for me to apply. My Social Security retirement pension will be much higher than his. Does it make sense for her to claim spousal benefits on my file at age 65 or wait until she is 67 years and seven months and collect her full retirement age amount. I’m waiting until I’m 70 to get mine back. Thank you, Henry
Hi Henry, Your wife would not have the ability to claim spousal benefits based on your account until you start collecting your retirement benefits. One of the requirements for spousal benefits is that the worker you are applying for must be entitled to (i.e. have applied for and received) Social Security Retirement or Disability Benefits (SSDI ).
If your wife qualifies for pension benefits based on her own work history, she may possibly apply for those benefits first and then apply for spousal benefits when you start collecting your pension benefits. However, if she begins to collect her pension benefits before her full retirement age (FRA), she will be locked in with the age reduction which will apply for as long as you both live. Best, Larry