Ask Larry: What Happens To The Money Withheld By Social Security’s Earnings Test?

Today’s column addresses questions about what happens to benefits lost to the earnings test, filing for spousal benefits before full retirement age, available benefits with multiple exes and survivor benefits and the earnings test. 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.

See more Ask Larry answers here.

Have Social Security questions of your own you’d like answered? Ask Larry about Social Security here.

What Happens To The Money Withheld Due To Social Security’s Earnings Test?

Hi Larry, I turn 62 in a few weeks. I’m retired and am contemplating filing for Social Security. I work part time and will make a bit more, say $6,000, than I can make without it affecting my Social Security benefits. If I make $6,000 more than the allowed amount for 2020 and therefore have a $3,000 decrease of Social Security payments, what happens to that $3,000? I thought I read that it gets added back into the calculation at full retirement age but an SSA rep just told me it goes away sort of as a penalty for still working.

Hi, Social Security is meant to replace wages lost to, among other things, retirement. If you make more than a certain amount, Social Security considers you not to be retired and so not all benefits that would otherwise be paid are actually paid.

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 you file at age 62 and your benefit rate is reduced for age by 28%. Then let’s say that between age 62 and FRA, 12 months of your benefits ended up being withheld because of your earnings. In that case when you reached FRA the percentage reduction in your benefit rate would be adjusted from 28% to 23%, effective increasing your monthly benefit rate by roughly 5%. Obviously, the amount of the change would vary depending on how many months of your benefits were withheld. So one way to look at it is that if you live long enough, you may eventually recoup the benefits lost due to the earnings in the form of the increase in your 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

If I File For Spousal Benefits Before FRA Can I Receive 50% Of My Husband’s Amount?

Hi Larry, I’ve done some research but am still confused about starting my Social Security benefits. I plan on filing spousal benefits. My husband will file at FRA, but I’m nine months younger than he is. When he files, can I file for spousal benefits and receive 50% of his at his time of filing? Thanks, Michelle

Hi Michelle, If your husband starts drawing his retirement benefits at full retirement age (FRA), he’ll be paid 100% of his primary insurance amount (PIA). If you file for spousal benefits nine months before you reach FRA, and assuming that you aren’t eligible for benefits based on your own earnings, your spousal benefit rate would amount to 6.25% less than 50% of your husband’s PIA. In order to get a full 50% of your husband’s PIA, and again assuming that you aren’t eligible for benefits on your own account, you’d need to wait until your FRA to start drawing spousal benefits. Best, Larry

Can I Get Both Of My Exes’ Benefits At 62 And Then Apply For My Benefits At Full Retirement Age?

Hi Larry, I am currently 60 and I am twice divorced from marriages that both lasted more than 10 years. When I turn 62, can I get both of my exes’ benefits combined and then claim mine which is higher than both of theirs when I reach my full retirement age? Thanks, Kelly

Hi Kelly, You can’t be paid more than one full Social Security benefit at the same time. If you file for more than one benefit, you can only be paid essentially the higher of the benefit rates. Furthermore, assuming that both of your exes are still living, you couldn’t file for divorced spousal benefits without also being deemed to be filing for your own retirement benefits at the same time. And if you file for benefits prior to full retirement age (FRA), your benefit rate will be reduced for age. Best, Larry

Can I Collect Any Benefits From My Deceased Wife’s Record If I’m Still Working?

HI Larry, My wife passed away in 2016. I will be 63 in November and I’m still working. Can I collect survivor benefits from her record and then start collecting my retirement benefits at 66 and 6 months? Thanks, Ben

Hi Ben, I’m sorry for your loss.

The answer to your question depends on your potential benefit rate, and how much you earn. If you file for widower benefits prior to full retirement age (FRA), your benefits could be subject to full or partial withholding based on Social Security’s earnings test. If you file for benefits prior to the year in which you reach FRA, $1 of your benefits would be withheld for each $2 that you earn in excess of the earnings test exempt amount. In 2020, the earnings test exempt amount is $18,240.

Your best filing strategy is could be either filing for reduced widower’s benefits early and then switching to your own record at 70, or filing for reduced retirement benefits on your own record early and then filing for unreduced widower’s benefits at full retirement age (FRA).

Normally, you would want to start out drawing the lower benefit first and then switch to the higher record when it reaches its highest potential rate. My company’s software — xxxx — could sort all of this out for you and help you determine your optimal filing strategy. Best, Larry

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