Ask Larry: 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 early spousal benefits. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc.

See more Ask Larry answers here.

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


When Should My Wife File For Social Security Spousal Benefits?

Hi Larry, I turned 65 last December and plan to start drawing social security in June. I stopped working completely in January 2020 — does that mean there will be a reduction in benefits? Also, my spouse doesn’t have enough credits to claim a Social Security retirement benefit on her own.

Assuming she outlives me, is there any way that her widow’s benefits will be significantly less than what I’d get? When should she file for spouse 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 with regard to spousal benefits. Your wife can’t collect spousal benefits at least until you start drawing your retirement benefits, and she needs to be at least 62 to be able to qualify for spousal benefits.

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If your wife starts drawing spousal benefits at her full retirement age (FRA) her spousal rate will be equal to 50% of your primary insurance amount (PIA). A person’s PIA is equal to their Social Security retirement benefit rate if they start drawing their benefits at FRA. But if your wife starts drawing spousal benefits at 62, her rate could be reduced by as much as 35%.

If you start drawing your retirement benefits in June, it sounds like you’ll be paid roughly 94.4% of your PIA. Your wife’s potential widow’s rate would also then be limited to no more than roughly 94.4% of your PIA.

If on the other hand you waited until 70 to start drawing your benefits, your benefit rate would be equal to roughly 129.33% of your PIA, and your wife could receive up to that full amount as a widow.

Regardless of when your wife starts drawing spousal benefits, as a widow she could still be paid up to the full monthly rate that you were drawing at the time of your death as long as she’s at least FRA at that time.

And note that not working in the years before filing does not reduce your benefit amount, although it would mean that your benefit rate wouldn’t increase as it otherwise might depending on how much you might have made but didn’t.

You and your wife may want to consider using my company’s software — Maximize My Social Security or MaxiFi Planner — to ensure your household receives the highest lifetime benefits. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry


Would My Income As A Contractor Be Averaged When Applying The Special Monthly Earnings Test?

Hi Larry, I’ll be retiring at the end of August from my W-2 job. I turn 61 in July and will claim widow’s benefits in September, so my first check will be in October. I understand there’s a special rule the first year of claiming benefits with regard to the earnings limit. If I work as a contractor from September to the end of the year, how much am I allowed to make? I believe it’s $1,630 per month.

But do they average it out over the four months? If I make $2,000 or $3,000 in September, and nothing else the remainder of the year, am I then okay with regards to the earnings limit? Would the $3,000 be divided by four months, leaving me well under the $1,630 max per month? Thanks, Sally

Hi Sally, Earnings are never averaged when applying the monthly earnings test regardless of whether or not a person works for wages or is self-employed. When a person is self-employed, the special monthly earnings test goes by the number of hours that a person devotes to their trade or business in each month.

In most cases when the monthly test applies, a self-employed person can be paid for any month in which they devote no more than 45 hours to their trade or business. However, for highly skilled trades such as medical doctors, the monthly limit is 15 hours.

The reason for using hours instead of earnings is because self-employed people don’t necessarily receive the fruits of their labor until long after the work is performed. For example, a farmer normally doesn’t receive any income for their work until sell their grain or livestock. Best, Larry


Does It Make Sense For My Wife To Claim Spousal Benefits At 65?

Hi Larry, my wife is 63, which is five years older than I am. We’ve decided it’s better to wait till full retirement age for me to file. My Social Security retirement benefit will be much higher than hers. Does it make sense for her to claim spousal benefits on my record at 65 or wait until she’s 67 and seven months and collect her full retirement age amount. I’m waiting until I’m 70 to collect mine. Thanks, Henry

Hi Henry, Your wife wouldn’t have the option of claiming spousal benefits based on your account until you start drawing your retirement benefits. One of the requirements for spousal benefits is that the worker on whose record you’re applying must be entitled to (i.e. applied for and receiving) either Social Security retirement or disability (SSDI) benefits.

If your wife is eligible for retirement benefits based on her own work history, she could potentially claim those benefits first and then apply for spousal benefits when you start drawing your retirement benefits. However, if she starts drawing her retirement benefits prior to her full retirement age (FRA), she’ll be stuck with the reduction for age that would be applied for as long as both of you are living. Best, Larry


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