Ask Larry: Will Future Social Security Benefits Decline Due To Covid-19’s Economic Slowdown?

Today’s column addresses questions about whether the Covid-19 pandemic’s affect on the economy will reduce future Social Security benefits, taking spousal benefits before retirement benefits at 70, how spousal benefits are calculated and filing options after two marriages. 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.

Will Covid-19’s Economic Slowdown Reduce Future Social Security Benefits?

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Hi Larry, I’m reading articles like this that claim the economic downturn caused by the Covid-19 pandemic will depress future Social Security benefits for some. How likely is this to happen? Can anything be done about it? It seems unfair that people who had nothing to do with our country’s disastrous handling of this pandemic should pay for mistakes others are making now. Thanks, Tom

Hi Tom, To summarize the cited article for the benefit of other readers, the author of the article is postulating that future benefits for people born in 1960 and possibly later will decline as a result of lower wages resulting from COVID-19’s effect on the economy. When calculating Social Security retirement benefits, Social Security indexes a person’s earnings based on national average wages in the year the person’s reaches age 60. Thus, if average wages go down in the year that a person turns 60, their indexed earnings will be lower. And that in turn would at least potentially lower their future benefit rate since the rate is based on an average of their highest 35 years of indexed earnings.

The actual national average wage in 2020 will not be known until the latter part of 2021. As a result, that’s the earliest that the correct indexed earnings for a person born in 1960 can be calculated. Our software uses the intermediate real wage differential from the latest Social Security Trustees Report to project future National Average Wage Indices (NAWI) for purposes of providing benefit estimates for people turning age 62 in future years, and we have no present plans to unilaterally assume a that there will be a lower NAWI in 2020 or subsequent years.

That said, users of our software are permitted to adjust the future assumed rate of inflation in order to customize their benefit estimates. Furthermore, I’ve been told by top officials from Social Security that Congress is highly likely to provide a fix to address any unintended consequences of Covid-19 on future benefit rates. Best, Larry

Could I File For Spousal Benefits And Wait Until Age 70 To Start My Benefits?

Hi Larry, I am my full retirement age of 66 and still working but thinking of retiring. I am married and he is retired and drawing his Social Security retirement benefit. Could I file for spousal benefits and wait to start my retirement benefit at 70. I was born March of 1954. Thanks, Molly

Hi Molly, Unfortunately you cannot. Only people who were born prior to 1/2/1954 are permitted to apply just for spousal benefits without also being required to file for their own benefits at the same time. This is known as a restricted application.

I don’t have enough information about you and your husband’s to offer you any advice, but the two of you should strongly consider using my company’s software — Maximize My Social Security or MaxiFi Planner — to analyze your various options so that you can determine your best strategy for maximizing your 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 At FRA How Much Will I Receive?

Hi Larry, My husband retired this year at 63 and is receiving a pension. He is going to apply for his Social Security retirement benefit, which should start at 63 1/2. Our income then will be the same as when he was working. I am 60, so if I wait until my FRA of 66 yrs and 10 months, will I get 50% of my husband’s retirement benefit at 63 1/2 or 66 1/2, his FRA? Thanks, Luz

Hi Luz, Assuming that you don’t qualify for benefits based on your own earnings history, if you wait until your full retirement age (FRA) to start drawing spousal benefits, you’ll be eligible for 50% of your husband’s primary insurance amount (PIA). A person’s PIA is equal the their Social Security retirement benefit rate if they start drawing at FRA.

If you do qualify for a retirement benefits you’ll be deemed to have filed for it as well and if they are higher than 50% of your husband’s PIA, you’d receive your larger retirement benefit instead of your smaller spousal benefit. Best, Larry

Could This Lady File For Benefits On The Records Of Either Of Her Former Husbands?

Hi Larry, A lady who is 64 was married for more than 10 years, divorced, then remarried to her new spouse for more than 10 years. Her new spouse later died. Her first husband is 65 and has never claimed. Would she be able to claim benefits off of the record of her first spouse or her deceased spouse which ever is the highest? Thanks, Sarah

Hi Sarah, My answer assumes that the first husband is living. Yes, this lady could file for either widow’s benefits on her second husband’s record, and/or divorced spousal benefits on her first husband’s account. However, she could never file for divorced spousal benefits on the first husband’s account while he’s living without also being deemed to be filing for her own benefits. In other words, when she files for either her own Social Security retirement benefits or divorced spousal benefits, she’ll be deemed to be filing for both benefits. She would then be paid essentially just the higher of those 2 benefit rates, and her benefit rate would be reduced for age if she starts drawing prior to her full retirement age (FRA).

This lady could file just for widow’s benefits, though, without being deemed to be filing for her own benefits or divorced spousal benefits. Her best option would probably be to initially apply for either a) widow’s benefits or b) her own benefits and divorced spousal benefits, and then switch to the higher benefit when it reaches its highest possible rate. Best, Larry

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