Ask Larry: Will Social Security Use The Annual Earnings Test If It’s Better For Me Than The Monthly?

Today’s column addresses questions about when Social Security uses the annual earnings test rather than the monthly test, when to contact Social Security in order to switch from a survivor’s benefit to a retirement benefit and how spousal and survivor’s benefits are calculated. 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 Social Security Use The Annual Earnings Test If It’s Better For Me Than The Monthly?

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Hi Larry, I turned 62 in January 2020 and started my Social Security retirement benefit in February. In April I started a job after having no earnings in the year. I will earn about $28,000 for the eight months at about $3,500 per month. Since I will be over the $1,520 for those eight months, will I be eligible for any benefits? Do they use the annual earnings test if it would be more advantageous, meaning I would only have to pay back about half of the approximately $10,000 I will be over? Thanks, Brian

Hi Brian, Yes, Social Security will use whichever earnings test (i.e. annual or monthly) would allow you to be paid the most benefits for 2020 based on your work and earnings. The monthly test would only allow you to be paid for February and March, so if the annual earnings test would allow you to be paid benefits for more than two months, Social Security will use the annual earnings test in your case.

Since you already know that you will be earning too much to be paid all of your benefits this year, you are supposed to notify Social Security of that fact immediately. Social Security will then withhold some of your 2020 benefits so that you won’t have an overpayment when the year is finished. Having benefits withheld while you’re working is almost always preferable to getting overpaid, since you can then avoid having to repay an overpayment at a time when you may no longer be working.

Also, depending on your future plans regarding work and earnings, you may want to consider withdrawing your application and reapplying at a later date in order to receive a higher monthly benefit rate. My company’s software — Maximize My Social Security or MaxiFi Planner — finds your maximized strategy and also allows you to run what-if scenarios so that you can determine your best strategy. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry

How Soon Do I Need To Contact Social Security To Switch To My Own Social Security?

Hi Larry, I will be 70 in March of 2021. I started drawing my widow’s benefit based on my deceased husband’s Social Security in January of 2017 at my full retirement age of 66. At the time there was about $50 difference between my widow’s benefit and my retirement benefit. I opted to collect the widow’s benefit and wait until I turn 70 in order to switch to my own Social Security retirement benefit in order to collect more at that time. How soon do I need to contact the Social Security Administration to switch to my retirement benefit and are there any suggestions or advice you can give me to make this process go smoothly? Thanks, Andrea

Hi Andrea, You’ll need to file an application with Social Security in order to switch to drawing on your own record, and you can file the application as early as four months prior to the month that you want to make the switch. Assuming that’s at 70, you could apply as early as 11/2020 in order to claim your benefits effective 3/2021. You don’t actually need to file that soon though, and you could actually file as late as 9/2021 and still be able to claim your benefits retroactive to 3/2021.

You may be able to file your application online, but if you’re unable to or prefer not to you can instead call Social Security to initiate the application process. Best, Larry

How Much Would My Husband Or I Be Paid If One Of Us Dies?

Hi Larry, I am 65 and recently retired. My retirement benefit is $1,225. My husband is 73 and his retirement benefit is $210. He instead receives spousal benefit of $593. If either of us dies, how would survival benefits work for my husband? Would he be eligible and how much would he be eligible for? Would I lose any benefits if he passes first? Thanks, Pamela

Hi Pamela, First, just to clarify, if your husband was drawing his own benefits when he filed for spousal benefits, his own benefits would not stop being paid. Instead, his excess spousal rate would be calculated by subtracting his primary insurance amount (PIA), or his PIA augmented by delayed retirement credits (DRC) if he started drawing after full retirement age (FRA), from 50% of your PIA. A person’s PIA is equal to their Social Security retirement benefit rate if they start drawing at FRA. Assuming that amount is positive, the excess spousal rate would be paid in addition to his own rate. So, in other words, it sounds like what your husband now receives is his own benefit rate plus a partial spousal benefit.

The surviving member of a couple can only be paid the higher of their own benefit rate or their deceased spouse’s rate. So, since your husband’s rate is lower than your rate, if he dies first you’ll just continue receiving your own rate. However, a widow(er) can potentially qualify for a one-time death benefit of $255 regardless of whose benefit rate was higher.

If you die first, your husband will be eligible for a combined benefit rate equal to 100% of your benefit rate. Basically, he’d continue receiving his own benefit and his partial spousal rate would convert to an excess widower benefit equal to the difference in his own rate and your rate. Thus, his total benefit would then add up to the full amount that you were drawing. Best, Larry

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